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I UNITED- STATES OF AMERICA 



ECONOMICS 



OR 



THE SCIENCE OF WEALTH 



.\ BY 



JULIAN M.^^TURTEVANT, D.D., LL. D., 

PROFESSOR t)F POLITICAL ECONOMY IN ILLINOIS COLLEGE AND 
EX-PRESIDENT OF THE SAME. 



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Paul. 



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NEW YORK 
G ~ p. PUTNAM'S SONS 

182 Fifth Avenue 

1877. 

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Copyright, 
BY G. P. PUTNAM'S SONS. 

1877. 



PREFACE 



I HAVE been induced to undertake this work by a 
conviction, the result of many years of experience as a 
teacher, that, to a considerable extent, the definitions in 
use in the science of which I have attempted to treat are 
indeterminate. Especially has it seemed to me, that 
while in all our treatises the subject matter of the science 
is assumed to be wealth, that word is either left without 
any satisfactory definition, or if a valid definition is given, 
it is not applied to the whole group of phenomena em- 
braced in it. The words labor and capital also seem to 
me to have been so loosely defined, as to give an aspect 
of indefiniteness to the whole science. I can hardly be 
mistaken on this point. I have constantly seen the 
evidence in each successive class, and whatever text-book 
I have employed, that intelligent minds are aware of this 
indefiniteness, and their interest in the science is dimin- 
ished by it. The same thing is apparent in the general 
public. Many intelligent minds either deny that any 
science of Economics exists, or if they admit its existence, 
they regard it as so vague and indeterminate as hardly 
to deserve to be called a science. I am compelled to 
admit that these complaints are not altogether ground- 



IV PREFACE. 

less. If I am right in this admission, the ground of such 
objections can only be removed by more accurate defini- 
tions, and a more logical method. Such definitions I 
have attempted to frame ; such a method I have sought 
to pursue. I have endeavored to present the whole 
science as a logical development of a single law of 
nature. Such I am sure it is, whether I have succeeded 
in so presenting it or not. If I have failed in what I 
have attempted, some other one more fortunate will 
surely succeed. With this frank statement of the motives 
which have induced me to write this treatise, I submit 
my work to the candid judgment of the American public. 
Surely no people ever had more urgent need of sound 
economic knowledge than we have at the present time. 

J* M. S. 

• Illinois College, Sept. 3d, 1877. 



CONTENTS. 



JV. B. The figtires refer to the sections. 

INTRODUCTION. 

FIRST PRINCIPLES. PAG 

Fundamental natural law, i. All ownership acquired by- 
labor, 2, Two distinct sciences evolved from the same 
fundamental law, 3. Definition of Wealth, 3. Defini- 
tion defended, 4 and 5. Definition of Labor, 6. Labor 
divided into two classes, 6. Name of the Science, 7. 
Definition of Economics, 7. Science consists of three 
parts, 8. Social and moral conditions assumed by the 
Science, 8a. 



PART I.— Production. 



CHAPTER I. 



STIMULI TO LABOR. IT 



A rational soul, 9. Impulse of appetite, 10. Need of clothing, 
shelter, etc., ii. Love of acquisition and ownership, 12, 
Love of the beautiful, 13. Love of humanity. 13. All 
men's powers must be brought into use, 14. Satisfaction 
of aitificial wants, 15. Necessity of Government, 16. 



VI CONTENTS. 



CHAPTER II. 

CAPITAL. PAGE 19 

Love of gain insatiable, and why, 17. Definition of Capital, 18. 
Subdivisions and other definitions, 18. These definitions 
explained and justified, 19. Sole function of Capital, 20. 
How Capital aids Labor, first sustains the laborer, second 
furnishes tools, third provides machinery, 21. All human 
beings laborers, 22. Wealth not national, 23. Aid ren- 
dered by Capital to Labor unlimited, 24. Partial limita- 
tion in Agriculture, 25. Land the fixed Capital of Agri- 
culture, 25. 

CHAPTER III. 

CAPITAL A UNIVERSAL PATRIMONY. 30 

Principle proved, 26. Illustrated by the estate of A. T. Stew- 
art, 27. Individual gratification the compensation of the 
capitalist, 28. Promotes improvement in architecture, 
28. How men become public treasurers, 28. Public 
treasurers unfaithful, 29. Public liberality, 30. Recapitu- 
lation, 31. 

CHAPTER IV. 

DIVISION OF LABOR. 37 

Diversity of natural endowments necessary to society, 32. Law 
of habit, 33. Definition of division of Labor, 33. Origin 
of do., 33. Extension of the principle in modern manu- 
factures, 34. Economic advantages of it, 35. Increases 
skill, 35. Saves time in learning trades and in adjusting 
tools and adjusts compensation to skill, 35. Limitations 
of division of Labor, viz., Nature of the process. Want of 
sufficient capital, and Demand for the product, 36. Divis- 
ion of labor not national, 37. Combination of labor, 38. 
Other classifications of labor, 38a. 



CONTENTS. VU 



PART IL— Exchange. 



CHAPTER I. 

VALUE. PAGE 49 

Definition of Exchange, 39. Importance of definition of value, 
40. Definition of Competition, 41. Definition of Value, 
Do. of Cost, Do, of Price, Do. of Supply and Demand, 42. 
Relation of Cost to Value, 43. Competition the only test 
of Value, 44. Objections to Competition as a universal 
test of Value, 45. 



CHAPTER II. 

FLUCTUATIONS OF VALUE. 58 

Two causes of fluctuations of Value. First cause, variation of 
cost of production, by improvement in machinery, by in- 
creased facilities of communications 46. By changes in 
the cost of material, 47. Second, variation of the ratio of 
Supply and Demand, 48, Ratio of Supply to Demand 
may be increased or diminished temporarily or perma- 
nently, 48. When Supply can be increased without in- 
creased cost, 48, When Supply cannot be increased 
without increased cost, 49. When Supply cannot be in- 
creased, 50. 

CHAPTER III. 

MONEY. 68 

Money the tool of Exchange, 51. Not the invention of a sin- 
gle mind, 52. Definition of Money, 53. Money mercan- 
tile fixed Capital, 53. Gold and Silver suitable for Money, ■ 
Universal desirableness ; scarce and obtained by great 
labor. One suited for large Exchanges the other for small. 
Capability of minute division, 54. Little subject to fluc- 
tuations of Value, 55. Money cosmopolitan, 56. Indica- 
tions of designing mind, 57. 



CONTENTS. 



CHAPTER IV. 

THE RELATION OF THE GOVERNMENT TO THE MEDIUM OF 

. EXCHANGE. PAGE 78 

Chimerical theories, 58, Right of the Government to prescribe 
a legal tender, 59. Notes of the United States made legal 
tender, 60. Why? 60. Government may not interfere 
with contracts, 6r. Should never make its own promises 
legal tender, 61. Obligation to redeem greenbacks, 62. 
Greenbacks a depreciated currency, 63, Produce great 
fluctuations, 63. No natural limit of their amount, 64. 
Value varies inversely as the amount, 64. An elastic cur- 
rency impossible, 65. Communism, 65. Unstable currency 
injurious to trade, 66. 



CHAPTER V. 

CREDIT AND PAPER MONEY. QO 

Credit founded in human nature, 67. Always present in the 
relation of capital to labor, 67. Definition of credit, 67. 
Banks of deposit, 68. Facilitate exchanges, 69. Credit 
cosmopolitan, 69. Banks of loan, 70. Banks of issue, 
Paper money, 71. Convenience of paper money, 71. Un- 
stable, 72. Credit and legislation, 72. National currency, 
73. Security for its redemption, 73. Not a satisfactory 
solution of the banking question, 74. Depends on the 
credit of the government, 74. No security for the pay- 
ment of deposits, 74. Credit should be left to its natural 
development, 74. Why not a national bank, 75. 



CHAPTER VI. 

FUNCTIONS OF CREDIT. 102 

Great influence of credit, 76. Quickens exchanges, 76. Unites 
skill and capital, 77. Diminishes the amount of money 



CONTENTS. ix 

needed, 78. By book accounts. By checks and drafts, 78. 
By bank notes, 78. The real advantage of paper money 

79. Will facilitate our return to specie payments, 79. 
Power of credit to control prices, 80. Dangerous element 

80. Financial crisis of 1837, 80. Binds the whole civil- 
ized world together, 81. 



CHAPTER VII. 

MONOPOLIES. PAGE IIO 

Foreign exchanges not international, 82. Definition of mo- 
nopoly, 82. What monopolies are defensible, 83. The 
monopoly of protection, 84. The word protection used 
unfairly, 85. Competition the enemy of no legitimate 
business, 85. Tends to the perfection of the product, 86. 
General principles of the science adverse to "protection," 
87. Human race one family, 87. Theoretical and prac- 
tical, 88. 



CHAPTER VIII. 

FREE TRADE, OBJECTIONS CONSIDERED. IIQ 

Definition of free trade, 89. Variety of industry said to be a 
condition of national prosperity, 90. Not universally, 90. 
Which is cause and which effect, go. In the beginning of 
society variety of industry impossible, 90. Free trade 
only opposed to unprofitable industry, 91. Protection 
said to be necessary for infant manufactures, 92. Free 
trade said to deprive land of manure, 93. Free trade said 
to be destructive of national independence. 94. What is 
national independence, 94. Dependence of nations mu- 
tual 95. Free trade tends to universal peace, 96. It is 
said free trade should be reciprocal, 97. Self-destructive 
retaliation, 97. Protection said to encourage skilled 
labor, 98. 



CONTENTS. 



CHAPTER IX. 



OBJECTIONS TO PROTECTION CONSIDERED. PAGE I35 

Aim of protection, Means inadequate, 99. Injurious to public 
morals 99. Constructs the economic fabric on a false 
principle, 100. Corrupts our national legislation, loi. 
Destructive of statesmanship, loi. In its own nature un- 
social, 102. Dangerous to our future, 102. Self-contra- 
dictory and self-destructive, 103. Raises the price of pro- 
tected articles 103. Benefits no class, 104. 



PART III.— Distribution. 



CHAPTER I. 



PRELIMINARY PRINCIPLES. I45 

Exchange and distribution distinguishable, 106. Distribution 
defined, 106. Controlled by competition, 107. Recapitu- 
lation, 107. Two-fold division, 108. 



CHAPTER XL 

WAGES DETERMINED BY COMPETITION. I50 

Wages defined, 109. Labor and capital often in the same 
person, 109. Employer and employe, 110. Location of 
the conflict, no. Wages not controlled by the employer, 
III. Both parties controlled by competition, 112. Nee- 
dle-women cannot be relieved of competition, 113. 
Wages above the rate of competition injurious to em- 
ployes, 113. Minimum and maximum of wages, 114. 



CONTENTS. XI 



CHAPTER III. 

WAGES AS AFFECTED BY COMBINATION. PAGE l6o 

Combination of laborers, 115. Of capitalists, 115. The com- 
peting unit individual not social, 115. Strike 'defined, 

116. When it can and when it cannot succeed, 116. 
Trades-unions, their objects, 117. Often monopolies, 

117. Consequences if successful, 118. Success impossi- 
ble, 119. Cannot control all workmen, 119. Will arrest 
accumulation, 120. Employers cannot resist competition 
by combination, 12 1. Must have the reputation of pay- 
ing fair wages, 121. Violence must not be used, 122. 



CHAPTER IV. 

VARIATION OF THE RATE OF WAGES. I70 

Causes of the varying results of competition, 123. First cause, 
change of the number of laborers in proportion to capital, 

124. The greater the capital the greater the demand for 
laborers, and vice versa, 124. When both labor and cap- 
ital vary wages depend on the ratio of one to the other, 

125. Employers and employes not natural enemies, 125. 
Labor-saving machinery another cause, 126. Increases 
the demand for labor, 126. Chimerical expectations, 127. 
Exception for agricultural labor, 128. Wages vary with 
the cost of living, 129. Not merely with the cost of the 
necessaries of life, 129. 



CHAPTER V. 

CAUSES OF THE VARIATION OF WAGES FOR PARTICULAR 

PERSONS AND CLASSES. l8o 

First cause, diversity of natural gift, 130. Profits of eminent 
professional men, 130. Second cause, cost of acquiring 
skill, 131. Wages proportioned to skill, 131. Third 



XH CONTENTS, 

cause, amount of confidence reposed, 132. Honor of po- 
sition reduces wages, 132. Numerous causes, 133. Ex- 
cessive competition in certain occupations, 134. Com- 
peting unit, 134. Living of some of the competitors not 
at stake, 134. Obscure and subtle causes affect wages, 
135. Vicious celibacy, 135. Science not opposed to 
marriage, 136, Alleged injustice of the wages of women, 
137. Said to receive less wages for the same work, 137. 
Why not pay women the same wages as men, 138. Com- 
petition a guide to one's proper occupation, 139. Appli- 
cable to the Christian Ministry, 139. 



CHAPTER VI. 

OWNERSHIP OF LAND. PAGE I92 

Two parties in distribution, 140. Ownership of land must 
depend on a natural law, 141. Case of land different from 
that of air and water, 142. Nations own water on which 
they bestow labor, 142. Ownership of land acquired by 
labor bestowed, 143. Not merely temporary, 143. Gov- 
ernment title not procured by purchase from savages, 144. 
Savage tribes not nations, 145. Higher law, 145. What 
shall be done with the Indian, 146. Origin of the gov- 
ernment title, 147. Right of political jurisdiction, 147. 
Objection to this view. Labor of subduing land said to 
be over compensated, 148. Not true, 148. Not relevant 
if true, 148. Another objection. Prospective enhance- 
ment of value, 149. Allowed for in rent, 149. 



CHAPTER VII. 

INTEREST. 204 

Gains of the capitalist are either interest, rent or profit, 150. 
Interest defined, 150, Consists of two elements, 150. 
Why interest must be paid, 151. Legislative interference 
with, 151. A violation of ownership, 151. Controlled 



CONTENTS. XIU 

by competition, 152. Various causes of fluctuation, 153. 
Tenure of land affects the rate of interest, 153. Different 
rates in different countries, 154. Declines with the pro- 
gress of civilization, 155. Stationary condition of capital 
not to be apprehended, 156. Demands for capital in- 
versely as the rate of interest, 157. Cosmopolitan nature 
of capital sustains the rate of interest, 158. Also labor- 
saving invention, 158. 



CHAPTER VIII. 

RENT. PAGE 2l8 

Rent defined, 159. No risk in rent, 159, Rent less than in- 
terest without risk. Reason why, 159. Ricardo's theory 
of rent stated, 160, Rent in new settlements, 161, Rea- 
son why, 161. Progress of cultivation, 162. Fallacy of 
Ricardo's theory, 163. Why rent rises with the progress 
of society, 164. Law of diminishing returns, 165. Rent 
an element in the cost of agricultural produce, 165a. 
Abolition of rent impossible, 166. Rent offset by trans- 
portation, 167. Fawcett's admission, 168. Same fallacy 
applied to minerals, 169. 



CHAPTER IX. 

PROFIT. 232 

Profit defined, 170. How differs from interest, 170. Rate de- 
clines with advancing civilization, T70. Competition the 
supreme law, 171. Rate different in different occupations, 
172. Each occupation has its natural rate of profit, 172. 
Combinations of capital to resist competition, 173. Free 
Trade the best antidote, 173. Particular combinations. 
Petroleum, 174. Great Railways, 175. General Railway 
law, 176. Wisdom of the managers not a sufficient public 
protection, 177. Question complicated and difficult, 178. 
No effectual protection against such combinations, 178. 
Great advantages of large combinations of capital, 179. 



XIV CONTENTS. 



CHAPTER X. 

UNDERLYING CONDITIONS OF FREE COMPETITION. PAGE 245 

Three conditions, i8o. First condition, freedom of exchange, 
especially in land, 1 80. Required by the law of owner- 
ship, 181. Limitation of it injurious to both parties, 181. 
Desire of the agricultural laborer to own land, 182. Life 
hopeless without it, 182, Relative profit of large and 
small farming, 183. Comparison of English and Ameri- 
can tillage, 184. Land more valuable in small proprietor- 
ships, 184. Why the number of holdings in England is 
diminishing, 185. Difficulty of the question, 185. Second 
condition, intelligence in both parties, 186. Competition 
impossible without it, 186. Relation of our science to 
public education, 187. Proper limits of public education, 
187. Public education of itself not sufficient, 188. Agri- 
cultural population of New England, 189. Third condi- 
tion, moral integrity, 190. 



CHAPTER XL 

POPULATION. 261 

Malthus' theory of population, 191. False in practice, 192. 
Two results of free competition, 192. First result, uni- 
versal dissemination of civilization, 193. This law re- 
cently developed, 193. English colonization, 193. Why 
this law was little known in antiquity, 194. Not mani- 
fested in some modern nations, 194. Depends on quality 
of emigration, 195. True economic lesson, 195. Law 
applicable to capital, 196. Second result, human race 
propagated from best specimens, 197. Four strata in civ- 
ilized society, 197. First and second contribute little to 
population, 198. Fourth class contributes little, 199. 
Population chiefly derived from the third class, 199. 
Conditions most favorable, [99. Propagates the highest 
civilization, 200. The law of wages beneficent, 200. 
Darwin's natural selection, 200. Future of the human 
race secured, 201. 



CONTENTS. XV 



CHAPTER XII. 

ECONOMIC CONDITIONS OF GENERAL PEACE, PAGE 273 

Economic importance of the peace of the world, 202. De- 
graded masses dangerous to internal tranquillity, 203. 
Dangerous to international harmony, 204. All must 
demand and expect the comforts of life, 205. Strong to 
repel invasion, weak for aggression, 205. The one con- 
dition of general peace, 206. 



CHAPTER XIII. 

SUBSTITUTES FOR COMPETITION. SOCIALISM. 2S0 

Public mind unquiet. Cooperation, 207. Socialism, pure and 
simple, 207. A denial of our fundamental law, 208. Mod- 
ified socialism 209. Relies on competition while it re- 
jects it, 2og. Dispensing with the services of middle men, 

210. Allowing laborers a share of profits, 2ii. The true 
agricultural cooperation, 211. Education not sufficient, 

211. Laborers should be stockholders, 211. True coop- 
eration not kindred to socialism, 212. Competition the 
only hope for the laborer, 212. Abolition of private own- 
ership of land, 213. National baiikruptcy and anarchy, 

213. Logical consequence of unjust laws of land tenure, 

214. Should government find employment for the unem- 
ployed, 215. Abolition of the right of property, 215. 



CHAPTER XIV. 

TAXATION. 295 

No logical place for it, 216. Government a partner in all 
production, 216. Protection of person and property not 
the only political function, 217. Postal service. Streets, 
thoroughfares, etc., 217. Local taxation, by whom levied, 
217. Expense of public education, 218. Limits of, 218, 
Care of the unfortunate, 219, How far gratuitous, 21,9. 



XVI CONTENTS. 

State must protect its own existence, 220. Its promises 
bind individual conscience, 220. Abuse of the power of 
taxation, 221. Mode of taxation, 222. Revenue duties, 
222. Should not interfere with trade, 222. Taxation of 
debts, 223. Creditor should pay, 224, to the State that 
protects, 224. Dangers of excessive taxation, 225. 



CHAPTER XV. 

PAUPERISM, PAGE 3 12 

An anomaly. No logical place for it, 226. Always attends 
civilization, 226, No modification of economic law can 
provide for it, 227. Moral forces require consideration. 
Inadequate, 228. The economist insists on two prohibi- 
tions. No ownership without labor. Men must not be 
relieved from the fear of want, 229. Out-door relief to be 
avoided, 230. Relief establishments should not undersell 
in the market, 230. Objections to out-door aid, 231. 
Tend to increase pauperism, 231. Paupers should not be 
voters, 231. Relief establishments should be reforma- 
tories, 232. Vicious self-indulgence should be restrained, 
232. If society countenances vices it should support the 
pauperism they produce, 233. 



CHAPTER XVI. 

WASTEFUL EXPENDITURE. 324 

Supplementary topics, 234. Necessary and disposable pro- 
ducts, 235. Stimulants and narcotics, 236. In great de- 
mand, 236. No reasons to justify this vast expenditure, 
237. Eminently dangerous, 237. Economy enters no 
protest against the love of the beautiful, 238. False 
modes of ornamentation, 238. Fashion, 239. Peculiarly 
potent in democratic society, 240. Subject worthy of the 
consideration of the wealthy, 240. Adverse to correct 
taste, 241. Under freedom the people arbiters of their 
own destiny, 242. Relation to national character, 242. 
The wealthy not to lead useless lives, 243. 



CONTENTS. 



CHAPTER XVII. 



PUBLIC LIBERALITY. PAGE 334 

Love of social prosperity a natural impulse, 244. Laws of ex- 
change not adequate to supply all social m ant, 244. Gov- 
ernments cannot supply them, 244. Low rate of interest 
favorable to public liberality, 245. Intelligence of the 
community important to capital, 246. The rich should be 
voluntary public treasurers, 246. Public charities not to 
hold land by inalienable tenure, 247. Higher Institutions 
of education should be controlled by the highest culture, 
248. Government inadequate to it, 248. Tendencies of 
democratic peoples to lavish expenditure, 249. Public 
liberality the remedy, 249. Capital so used not with- 
drawn from the aid of labor, 249. 



INTRODUCTION, 



FIRST PRINCIPLES. 

§ I. The science we are about to expound, Is the 
logical development and application to a special group 
of phenomena, of a single law of nature, as truly as 
physical astronomy is the logical development and ap- 
plication to the phenomena of the solar system, of the 
law of gravitation. The law of nature to which we 
refer may be thus enunciated : 

f^ Eve7'y man ozvns himself^ and all which he produces 
l_^'the voluntary exertion of his own powers. 

Every science must assume something. Ours must 
assume that the idea of ownership is perfectly clear 
and intelligible to every one. It is a simple intuition, 
which originates in the spontaneous action of every 
human mind, and is therefore undefinable. It ranks in 
this respect with the idea of personality, of moral obli- 
gation and of causation. As the being we call self is 
-conscious of its own wants, and exerts its own powers 
to supply them, it necessarily discerns the idea of pos- 
session, and begins to understand the meaning of pos- 
sessive pronouns and learns correctly to apply them. 

§ 2. This is our only idea of ownership. You 
cannot convince any human being, that another per- 
son may properly claim the possession of any thing 
as exclusively his own, unless his claim can be traced 
back to an origin in the natural law just enunciated. 



2 ECONOMICS. 

If it can be so traced back, no man in his senses will 
call in question its validity. The ownership may 
have passed by voluntary gift or exchange, the nature 
of which transaction will hereafter be explained, 
through many hands ; but if the ownership really ex- 
ists, it must have been originally acquired by the exer- 
tion of some one's individual powers, to render the 
thing claimed serviceable to human well-being. The 
human mind instinctively discerns that in this way ab- 
solute ownership is acquired, and that the acquisition of 
any real ownership in any other way is impossible. 
The powers of nature are the free gift of God to all, 
and cannot be possessed. All those objects whereby 
man's wants are capable of being supplied by his own 
superadded efforts, are given in impartial liberality alike 
to all. The air, the water, the land, the spontaneous 
productions of the earth, the primeval forest, the game, 
the wild fruits are free to all. It is only when man has 
put forth his own efforts to render that helpful to hu- 
man well being which was not so before, that the idea 
of ownership arises. Man's indisputable claim to the 
results of his own exerted powers carries along with it 
the material substance which by his exertion has been 
made fit for human use. The wild fruits as they hang 
upon the bush can be owned by no one. He who 
gathers them, by gathering becomes their owner. The 
nugget of gold that lies on the surface in some seques- 
tered gorge of the mountains has no owner, any more 
than the atmospheric air which circulates around it. 
He who has made a journey to those unfrequented re- 
gions of desolation, discovered and picked up the pre- 
cious thing, and carried it to the haunts of men, has 
become its owner, however great its value, just as he 
owned the ripe blackberry as soon as he had plucked it 
from its native bush. He who has entered on land 



INTRODUCTION. 3 

never before subjected to human culture, has acquired 
the possession of all which by his own toil he has sub- 
dued and rendered capable of producing food for man. 
The savage who for generations roamed over it in pur- 
suit of game, and lived on its spontaneous productions, 
acquired no ownership, because he did nothing to in- 
crease its capability of supplying human want. We do 
not expect to obtain full credence for these proposi- 
tions without further proof than we can give in these 
preliminary statements. As we proceed in the devel- 
opment of the subject, there will be occasion more 
fully to illustrate and substantiate the principle. It is 
only appropriate here to give it its place among the 
fundamental principles of the science. 

All owner sJiip of material things consists essentially in 
our unquestioned claim to possess and enjoy the results of 
that labor which we have expended tpon them. 

§ 3. Two distinct sciences result from the develop- 
ment and application of this natural law. The being 
that owns these powers is capable of moral obligation, 
and is a subject of m.oral law. To point out the moral 
laws to which he is amenable in the exercise of these 
powers, is the sphere of the science of ethics. To 
develop the same fundamental law in the direction of 
the multiplication and exchange of objects fitted to 
satisfy human desire, and the distribution of them 
among all those who cooperate in their production, is 
the sphere of the science we are proposing to expound. 

In constructing a system of science, it is necessary 
first to draw its extreme bounding lines. This can 
only be done by forming a comprehensive concept, 
which shall embrace precisely and only all the phe- 
nomena with which the science is to deal. We think 
that writers on our science have often failed to do this, 
and that much of the vagueness and indefiniteness with 



4 ECONOMICS. 

which it is charged is due to this cause. For the ex- 
pression of that comprehensive concept we select the 
word wealth. We propose to write a treatise on the 
science of wealth. We must therefore define that 
word. 

At the present stage of our inquiries, we can scarcely 
afford space for any controversy with those who think 
with Professor Perry, that it is impossible to frame any 
definition of wealth which will render the word fit for 
scientific use. Professor Perry has written a book 
which contains much clear thought and instructive 
suggestion. But it greatly lacks the scientific char- 
acter, precisely for the reason that, instead of applying 
his acute mind to the definition of wealth, he has writ- 
ten about it without defining it. It is of no avail to say 
that the meaning of the word is unsettled. That only 
shows that it is necessary to settle it. The science 
itself will always be to a greater or less extent vague 
and indefinite, unworthy to be called a science, till the 
precise meaning of that word is determined by accurate 
definition. If the word wealth cannot be defined, then 
the science of wealth is simply impossible. Nor do we 
escape the difficulty by adopting Archbishop Whate- 
ly's definition of the science, — "the science of ex- 
change." We must still meet the question, what is 
wealth ? for to wealth only is exchange applicable. We 
give therefore the following : 

"' Definition, Wealth is anything which can be owned 
and exchanged f 07' an equivalent. 

This definition embraces, 

First, All human powers to adapt the materials of 
the world to the satisfaction of human desire by vol- 
untary efi"ort ; for the scare owned and can be exchanged 
for an equivalent. A man can exchange his power to 
produce such changes, for a day, for a year, for a life- 



INTRODUCTION. 5 

time, for so many dollars, or for so much of any other 
desirable thing as may be agreed on between himself 
and the other party to the exchange. 

Second, All tools, instruments and machines by 
which human labor is assisted. 

Third, All objects which have been rendered capa- 
ble by human effort of gratifying human desire, which 
remain at any time unconsumed, whether the process 
of fitting them for human use is completed, or in pro- 
gress. Into precisely these three classes all wealth is 
divisible, and into one of them every thing of which the 
science properly treats will naturally fall. 

§ 4. If to this definition it is objected that the 
word wealth is not ordinarily employed in so com- 
prehensive a sense, the fact is admitted, but it is 
denied that this is any valid objection to the defini- 
tion. In many sciences we are under the neces- 
sity of employing technical terms as comprehensive 
concepts of the phenomena with which any science 
has to do, which terms do not agree in the extent of 
their meaning with any terms which are in popular use. 
The popular mind has never formed that precise group 
of ideas with which the science has to do, and there- 
fore has no term which expresses it. In every such 
case we have our choice of two expedients, either to 
select a new term not in popular use, more commonly 
derived from the storehouse of classical learning, or to 
choose a word in popular use which comes nearest to 
the desired meaning, and then limit it by a definition to 
a precise technical import. In the moral and social 
sciences we have for the most part pursued the course 
last indicated. Thus in Psychology the term percep- 
tion is almost never used in popular speech in that 
precise meaning in which it is employed to express the 
acquisition of a knowledge of the material world through 



6 ECONOMICS. 

the senses. We have in this "case selected a word from 
popular speech, and by a definition invested it with a 
precise technical meaning which it does not bear in 
common use. Precisely such liberty has been taken 
with the word wealth in our definition. Such a use of 
words finds innumerable justifications in all the moral 
and social sciences. 

§ 5. If it is further objected to our definition of 
wealth, that it arranges in the same class things that 
are incongruous, that it embraces in the same genus 
things which have no generic likeness, as for example 
the wealth produced and the powers by which it is pro- 
duced, our answer is, that the things referred to are not 
incongruous, that they are united by true generic re- 
semblances. They are alike in the two generic char- 
acteristics, that they are capable of being owned and 
capable of being exchanged. The reason why so much 
difficulty has been experienced in defining this word is, 
that men have failed to notice that these are the true 
characteristics of the genus, and that they pertain alike 
to all which we have comprehended in our definition. 
Nothing is more common than such an occurrence as 
the following. One man has accumulated results of 
labor which he wishes to employ in trade. But he is 
infirm with age or otherwise incapacitated for exerting 
the active force which the business requires. He is 
therefore quite willing to enter into a partnership, on 
equal terms, with some one who possesses the requisite, 
business efficiency, regarding the active powers of his 
partner as a full equivalent for the accumulated results 
of his own previous activity. One partner is just as 
rich in present active power, as the other is in accumu- 
lations of wealth. The two are regarded as perfectly 
homogeneous, and the one is freely exchanged for the 
other. If one of them is properly called wealth, why 



INTRODUCTION. 7 

not the other? Examples involving and demonstrating 
the same principle are innumerable. 

§ 6. The word labor will be of frequent occurrence 
in this treatise. We therefore propose the following: 

Definition, Labor is the exertion of 7nans naturalT^ 
powers^ for the purpose of producing such changes as \ 
conduce to the gratification of human desire and the sup^^/ 
ply of human want. 

All labor is divisible into two classes, viz : 

First, That which is employed in constructing the 
implements and machines by which labor is aided and 
Tendered efficient, and, 

Second, That which is employed in producing 
changes whereby desire is directly gratified. 

§ 7. The science of which we propose to treat is 
usually called Political Economy. To this name there 
are grave objections. We cannot help thinking that 
the continued use of this name is a standing proof, that 
the aim of the science has been to a certain extent mis- 
directed. The name seems to suggest the idea, that the 
object of the science is to promote the wealth of the 
nation, that it always has special reference to the polit- 
ical divisions of the world, to those lines which are the 
conventional boundaries of nations. Some such idea 
seems to have been in the mind of Adam Smith, the 
father of the science, and to have induced him to choose 
for the title of his great work, " The Wealth of Nations." 
A recent writer on the subject. Professor Bowen, has 
chosen for the title of his book, "American Political 
Economy." In just so far as this idea of nationality 
has possession of the mind of the writer, it tends to a 
distorted and erroneous view of the subject. All this 
is as inappropriate as to speak of national Ethics, or 
American Astronomy. Science is not national or poli- 
tical. It is Universal. It is Human. Economy means, 



8 ECONOMICS. > 

the law of the household, the family. There is a Human 
Family. " All ye are brethren." The Science of which 
we are to treat embraces that whole family, as truly as 
Ethics does, as truly as Astronomy gives us the science 
of the heavenly bodies, however separated from each 
other in immensity. We claim for the science its place 
among the universal sciences, like Ethics, Esthetics, 
Physics. Following the analogy according to which 
these names are constructed, we claim for our science 
^he name Economics. We give the following : 

Definition, Economics is the Science of Wealth. 

§ 8. As all wealth is either power to labor or the 
product of labor performed, and as power to labor is 
profitless unless it is exerted, our first inquiries will be, 
— what are those forces in human nature itself by 
which man is excited to exertion, and what are those 
devices and arrangements by which his natural powers 
are aided and rendered efficient "i The first part of 
our science is concerned with these inquiries, and is 
called Production. 

As it will appear in the progress of this work, that 
for the most part one man produces only one or at 
most a very few things, and must therefore supply hi^ 
own multifarious wants by exchanging his products for 
the products of other men, it will be necessary to show 
how the law of exchange grows out of the law of 
ownership, and to explain the principal arrangements 
by which exchange Is facilitated, and the natural law 
according to which it is conducted. This second part 
of the science is called Exchange. 

As the whole human race is employed in greater or 
less degree in producing wealth, and must have a share 
in the wealth produced, or perish, we must expound 
those natural laws by which it is determined in what 
proportion the wealth of the world is distributed among 



INTRODUCTION. 9 

all those who are concerned in its production. The 
third part of the science is devoted to the consideration 
of these laws, and is called Distribution. 

To these it is customary to add a fourth part called 
Consumption. In it are explained the principles which 
regulate the application of wealth to the gratification 
of human desire, and the promotion of human well- 
being. But logically regarded, this fourth part of the 
science opens up the whole science of ethics. To pur- 
sue the subject exhaustively, we must inquire what is 
the destiny of man, for we cannot judge what man 
needs except in view of the destiny for which he was 
made. Having settled this question, it v/ould next be 
incumbent on us to inquire by what application of his 
powers, he may most surely and completely attain this 
destiny. To pursue these inquiries by an exhaustive 
logic, would be to construct the science of ethics. 

§ 8 ^. In affirming that the Science of Economics is 
only a development of the single law enunciated 
above, we are not to be understood to assert, that the 
science so constructed is comprehensive of all the 
actual economic phenomena of the world as it is ; but 
only that, if the laws of human nature were uncounter- 
acted, either by government or vicious custom, and 
thus left free to work out their own proper results, 
those results would be in perfect conformity with the 
science thus evolved. This distinction is constantly 
recognized in this treatise, and if in any instance it is 
not formally stated, it is to be regarded as assumed and 
implied. It is our business as economists, not to point 
out a law which actually does regulate the economics 
of all peoples, but to show how the laws of human 
nature, when not viciously counteracted, would regulate 
them ; and as far as may be, in cases where abnormal 
results exist, to discover the causes by which the mis- 



lO ECONOMICS. 

chief is wrought, and to suggest the needed economic 
remedies. 

The enlightened economist will be quite ready to 
admit, that there are conditions of the successful work- 
ing of the economic forces, which lie quite outside of 
his science. The intellectual and moral soundness of 
the individuals and the communities working these 
forces are such conditions. If we have to do with 
masses of men, in whom the intellect is deeply clouded 
by ignorance and superstition, and the moralities oi 
life disregarded or unknown, economic science is im- 
possible. That science always implies men, not brutes 
in human form, — civilized men, not barbarians, — men 
that know and obey the moral laws of human life. 
When we assert the universality of economic laws, we 
are not to be supposed to deny, or to be forgetful of 
these truths. But the existence of these truths can in 
no degree modify the development of economic laws, 
or detract any thing from the universality, or from the 
dignity or importance of the science. 



PART I 



PRODUCTION. 



CHAPTER I. 

Stimuli to Labor. 

% g. It is the object of this chapter, to inquire what 
that is in the constitution of man that makes him the 
only laborer that inhabits this world. The lower orders 
of the creation cannot be said with any propriety to 
labor. All labor implies intelligent purpose. Man 
does not merely catch or gather his supplies. For the 
most part he makes them. He imparts to the materials 
which nature provides qualities which they did not 
possess before, and thus fits them for his use. By the 
combined agency of the atmosphere, the sunshine and 
the land, he produces the materials of food and cloth- 
ing. Nothing but air and water and sunshine is found 
in a condition fit for his use. All else he makes fit by 
the exertion of his powers under the control of a rational 
soul. All the lower animals use nature as they find it. 
They gather, some of them store up, but they never fit 
it for their use. Man begins where all other animals 
end. He, like them, takes from nature what she fur- 
nishes, but unlike them, he fits it for his use by rational 



12 ECONOMICS. 

effort. This only is labor. The fiist condition then of 
the perf ordnance of labor is the existence of a 7^ationai 
soul. Labor is not mere effort, it is rational effort. 

§ lo. The second stimulus to labor which we notice 
is the impulse of the appetites of hunger ., thirst and sex. 
The two former have for their object the preservation 
of individual life and health ; the latter, the perpetua- 
tion of the race. So important are these two objects 
that they are provided for by implanting in our very 
constitution impulses of appetite, so strong as to insure 
the end, without any experience or consideration of 
necessity. Men are driven to the satisfaction of these 
appetites without any thought of the necessity of such 
gratification to the preservation of their own lives, or 
the perpetuity of the race. So imperative are they 
that they compel a certain amount of labor even from 
the most indolent and degraded savage. 

Men work, not like the bee or the beaver, from a 
direct impulse to work, but from a perceived necessity 
of working that they may have something to eat. The 
beaver is impelled to build his dam just as the man is 
impelled to eat his food when it is made ready to his 
hand. The bee and the beaver will work though 
relieved from all necessity. Relieve man from the 
pressure of the necessity of working that he may escape 
starvation, and he would never work at all. This is a 
law of human nature of which the economist must 
never lose sight. 

§ II. Another stimulus to labor is found in certain 
needs of the human body which man lear^is o?ily by expe- 
rience. These are the need of shelter from the storm, 
from the cold of winter, and from the burning sun of 
summer, and of clothing suited to the season of the 
year. These wants are not like those of the bodily 
appetites constant and regularly recurring, but vary 



STIMULI TO LABOR. ' 1 3 

indefinitely with climate, season and weather ; and are 
provided for by no impulse of appetite. We are driven 
to provide for them only by experience of their urgency, 
and the more human nature is cultivated and developed, 
the more urgent and cogent these needs become. They 
are a no less natural stimulus to labor than the impulse 
of appetite. Apparently the only reason why they are 
not provided for by such special impulses, as in the 
case of the bird, is that in all man's vast variety of cir- 
cumstances and conditions, no impulse acting by a 
uniform and unvarying law, like the appetite of hunger, 
could have answered the purpose. Such an appetite 
would have been too strong in one climate, and too 
weak in another. 

§ 12. Another very important stimulus to labor is 
found in man's love of acquisition and ownership. It is 
difficult fully to conceive the power of this principle in 
our constitution, and its fitness to qualify man for his 
social destiny. Even in an isolated and savage exist- 
ence, man's condition without any accumulation of 
the results of labor would be exceedingly precarious 
and wretched. But it is only when we view man in 
the social condition to which he is destined, that the 
importance of this provision becomes fully apparent. 
Without vast accumulations of wealth civilization is 
impossible. The most superficial inspection of any 
civilized community will convince any one of this. 
Farms under high cultivation, tools and machines for 
facilitating labor, roads, ships and railways are only a 
few of the conditions of civilization which depend for 
their existence on vast accumulations of wealth. There 
is a very close analogy between the strong love of own- 
ership implanted in man's nature as a provision for this 
great social want, and the appetites already considered 
as a provision for the preservation of the individual man 



14 ECONOMICS. 

and of the race. Perhaps men might have accumu- 
lated wealth from a mere conviction founded on expe- 
rience of the necessity of it to social well-being; but 
in that case the conditions of society must have been 
very uncertain, and its progress very slow and toil- 
some. We sometimes denounce the greed of gain, and 
perhaps not without reason in particular cases; for 
nothing can be meaner than a life, spent under the su- 
preme control of the love of money. But on the whole 
the desire of gain is not too strong in human nature. 
It is one of the most beneficent provisions of the Crea- 
tor, and the economist should be foremost to condemn 
all arrangements which tend to restrain the freedom of 
its action. 

§ 13. Another stimulus to labor is the love of the 
beautiful. This is a factor in our science of the im- 
portance of which many writers have not been fully 
aware. Some men who ought to know better inveigh 
against those artificial wants which men experience in 
civilized life, as though all which is expended in satis- 
fying them, were so much withdrawn from the wealth 
of the community. This is simply objecting to all 
which distinguishes civilized man from a horde of sav- 
ages, or human society from a herd of brute animals. 
What such men have to say about natural in distinc- 
tion from artificial wants probably has reference to 
those wants which pertain to the support of life and 
the perpetuity of the race. They only are provided 
for by appetite and animal instinct. If these only 
were considered and their gratification provided for, 
there could be no science of economics. The condi- 
tion of a gregarious herd of animals, or the lowest stage 
of barbarism in savage life would be all that man could 
attain to. Here is no field for social science. What 
are called the artificial wants of men are no less natu> 



STIMULI TO LABOR. 



15 



ral than those to which we are impelled by natural ap- 
petite. They differ from them, not in being less indi- 
cated by nature, but in being discoverable only by the 
rational use of the intellect. 

Another stimulus to labor and the highest of all is 
the love of hmnanity. It is often disguised and over- 
laid by the appetites and the love of gain, until it seems 
to have quite disappeared from the human soul. But 
it is only in appearance. It is as truly an original and 
universal law of human nature as the appetite of hun- 
ger, and in proportion as man individual and social is 
developed and cultivated, it exerts a greater and more 
apparent influence on all human activities. It is the 
organic force in all society, and to give it controlling 
power over the individual man is the end to be aimed 
at in the formation of character. It is therefore not 
only entitled to a place, but to a foremost place among 
the stimuli to human labor. 

§ 14. In order that man may feel the full stimulus 
to labor which exists in his constitution, it is needful 
that his whole nature should be brought into active 
development ; not only those appetites which he shares 
with the brute creation, not only the consciousness of 
those needs which are common to him with the savage, 
but those propensities which belong to him as a being 
capable of foresight and calculation, and those tastes 
which raise him to the dignity of an esthetic and a moral 
being. 

The economist must meet the question how human 
labor can all be called into the most energetic demand. 
Otherwise men will be more indolent but certainly not 
richer. Let us suppose that the only mode of employ- 
ing human labor were for the supply 'of the bare neces- 
saries of life. In such a case, a large portion of man's 
power to labor would remain forever uncalled for and 



1 6 ECONOMICS. 

unexerted. The human race is not constituted for such 
a mode of life. Man has vast powers and capabilities 
for which, in such a mode of life, he would have no use, 
and from which he could never derive any advantage. 
Nearly the same result will follow, if a large portion of 
the community do not enjoy and have no hope of enjo}^- 
ing any thing beyond the same bare necessaries, though 
a favored few do enjoy all the advantages of a civilized 
existence. Obviously the demand for labor in such a 
community would fall below its natural intensity, by the 
precise amount of all the labor which must be exerted to 
supply the unsupplied wants of all those who are re- 
duced to the necessity of subsisting on bare necessaries. 
It may indeed be true, that these depressed classes may, 
as in certain classes of laborers in England and still 
more in Ireland, find their labor all demanded in pro- 
ducing something which is to find a market in other 
lands. But in that case it is only necessary to remem- 
ber, that wealth is not a national but a human phenome- 
non. It will then become apparent that, over the whole 
earth, the stimulus to labor is impaired just in propor- 
tion as any portion of the human race, no matter within 
what nationality, is reduced to the necessity of subsisting 
on bare necessaries. 

§ 15. Hence it appears evident that the stimulus to 
human labor throughout the world will be increased or 
diminished, according as a greater or less proportion of 
the human race attain to the satisfactioii of those wants 
which are commonly called artificial^ i, e., those wants 
of which we become conscious only through an active 
and cultivated intellect. All which adorns and beau- 
tifies life is of this character. 

This perfectly » agrees with the observed facts of 
human experience. The savage does not labor because 
he has no artificial wants. His love of the beautiful 



STIMULI TO LABOR. 1 7 

aspires to nothing higher than the gaudiest feathers 
which he can pluck from the birds he kills for food, or 
a few daubs of paint derived from the colored earths 
he chances to discover in his wanderings. The coarsest 
food and clothing and the rudest shelter from the sun 
and the cold are the only gratifications to which he 
aspires. Neither does he furnish any market for the 
beautiful products of more civilized peoples. If Amer- 
ica were reduced to the condition in which Columbus 
found it, England herself would find no buyers for a 
large portion of what she produces, and must recede in 
wealth and prosperity far back toward the condition in 
which she was three hundred years ago. 

Communities which are separated from the rest of 
the world by an insular position or by barriers of moun- 
tains, often acquire very slowly a knowledge of the 
progress of invention in the arts which adorn and beau- 
tify society. Such communities do not advance in 
wealth more but much less rapidly than those nations 
which are always abreast of the progress of invention, 
and enjoy all its refinements and beauties. If you 
would quicken the activity and increase the prosperity 
of such an isolated community, you must multiply their 
artificial wants. The theory that profuse consumption 
is the source of prosperity is absurd and mischievous 
enough, and yet it has in it an element of truth which 
many economists have sadly overlooked. 

A sound and true culture of the whole nature of 
man is a most important condition of the highest activ- 
ity of human labor. It is also of great importance that 
the civilizing forces should be applied to all portions 
of the community instead of being limited to a favored 
few. The economist is most intensely interested in so 
constructing society, that as far as possible, every por- 
tion of the human race shall aspire to and actually 



1 8 ECONOMICS. 

enjoy a civilized life, that there shall remain no out of 
the way places, no dark corners where barbarism can 
be hid away and concealed amid surroundings that are 
all radiant with beauty. How far this ideal of the 
economist can be realized in the actual condition of 
society, we shall not be prepared to judge, till we have 
considered those great natural laws which determine 
the distribution of wealth among those who are con- 
cerned in producing it. 

§ 1 6. It is obvious that none of these stimuli to 
labor can have much beneficial influence, unless men 
can in fact own and enjoy the products of their own 
labor, [t is also evident that in all communities, there 
are men who would rather live by theft, robbery and, 
fraud, than by their own honest labor. Our science 
therefore recognizes the necessity of the existence and 
all pervading influence of just, equitable and enlight- 
ened civil government, to protect every, man in the 
enjoyment of the results of his own labor, against the 
violence and fraud of every other. Without the per- 
vading presence and active efficiency of such a govern- 
ment, there can be no effective stimulus to labor and 
economic prosperity. Just in proportion as the laws 
of any country respecting property or the taxation of 
property are in contravention of the natural law ot 
ownership, as it has been already expounded; or the 
government fails to protect the individual in the full 
enjoyment of the products of his own labor, and of all 
the property rights which he has acquired in harmony 
with that law; just in that proportion will its stimulus 
to labor be diminished, and the increase of wealth be re- 
tarded. It is to be feared that governments often fail to 
appreciate the delicacy and sacredness of this function, 
and by inconsiderate legislation crush out that prosper- 
ity which it is their business to cherish and encourage. 



CAPITAL. 19 

CHAPTER II. 

Capital. 

§ 17. Man labors that he may satisfy the cravings 
of desire. But he has certain cravings that never can 
be satisfied. The reason is, that the aims toward which 
they are directed can never be fully attained. They are 
needed as perpetual stimuli of man's effort to attain that 
which he is always attaining but never attains. One of 
these is the love of gain. It is easily seen why this is 
insatiable. If all the laws of man's individual and social 
nature are obeyed, the progress of human society has no 
assignable limit. It is capable of an indefinite growth in 
numbers and in all the elements of a true civilization. 
It is certain indeed that there is somewhere a limit to 
the possible increase of the materials of human suste- 
nance which our planet can produce. But that limit is 
so far removed beyond anything which man has yet 
achieved or conceived of, that it is to us as though it did 
not exist. 

The insatiable character of the love of gain is cor- 
relate to this capability of limitless progress in society. 
It is a provision in the constitution of man for the indefi- 
nite accumulation of the products of human labor, to 
supply the wants of a civilization perpetually advancing 
in population and in the successful efforts of inventive 
genius. It is set over against all the other desires of the 
soul, to limit their gratification. All the other desires 
consume the results of labor in their gratification. This 
one is gratified by saving. Hence life is a constant com- 
promise between the desire of gain on the one hand, and 
the tendency to spend in the gratification of other de- 
sires on the other. As the former preponderates there 



20 ECONOMICS. 

is an approach to one extreme, which we will call the 
extreme of frugality. When the desire of gain is feeble, 
and the other desires preponderate, there is an approach 
to the other extreme, the extreme of prodigality. In the 
former case, other things being equal, accumulation will 
be rapid, in the latter it will be retarded, or in peculiar 
circumstances altogether cease. 

§ 18. There is then in the human constitution, a pro- 
vision for the unlimited accumulation of the results of 
labor for future use. Our present inquiry is, — in what 
relation do these accumulations stand to the economic 
system ? To what uses do they minister ? Before how- 
ever we enter on these inquiries, it is necessary to define 
a word which must be frequently used in all our subse- 
quent discussions. That word is capital. We propose 
the following 

f' Definition, Capital is every thing produced by pre- 
Ivious human labor ivhich still remains unexpended, 
^ We have previously included all that can be owned 
and exchanged under the generic concept wealth. By a 
definition also previously given we have embraced in a 
species under that genus all human power to labor, and 
called the species labor. By the definition just given 
we have appropriated to the only remaining species of 
the genus the name capital. Wealth therefore expresses 
the content of the science, and the two words labor and 
capital are its extent. In order that the whole subject 
may be presented at a single view we give in this place 
two or three other definitions. 

All capital may be subdivided into two classes, viz., 
Fixed Capital, and Circulating Capital. 

4 Definition, Fixed Capital is that which is employed to 
d labor a7td render it efficieiit. 
f^ Definition, Circulating Capital is that which is pre- 
i fared to be used in gratifying human desire. 



7 



y 



CAPITAL. 2 1 

Fixed capital is capable of a three-fold subdivision,— 
the Real, the Mechanical and the Mercantile. 

Definition, Real Fixed Capital consists of land and 
all its improvements. 

Definition, Mechanical Fixed Capital is that which is y 
used in producing a?id i-egulating momefitum. 

Definition, MercaJttile Fixed Capital is that which 
is used to assist exchanges. 

§ 19. We are not sanguine enough to expect that the 
definitions given in the previous paragraphs will be ac- 
cepted without questioning and without argument. We 
prefer however to leave the confirmation of our positions 
to the subsequent discussion and development of our 
S3^stem, rather than enter on any extended argument at 
this point. A few things however must be said rather in 
the way of explanation than of argument. It has been 
usual to divide all accumulated wealth into two portions, 
one portion comprehending all that which is devoted to 
the gratification of desire, the other portion compre- 
hending that which is devoted to the farther production 
of wealth. To the latter portion only the word capital 
has been applied. Our reflections on the subject have 
led us to the conclusion that it is not possible to render 
this distinction clear and definite for scientific purposes. 
Scarcely any thing tends so much to confusion ot 
thought, as attempts at distinction when the things to 
be distinguished from each other are not separated by 
any boundaries which can be exactly drawn and defined. 
It seems to us that the distinction here attempted is of 
this character, and that it has introduced a great deal of 
confusion of thought into the whole subject. 

We have chosen therefore to neglect this distinction 
altogether, and to regard all human beings as laborers, 
and the support of all who are supported, in such de- 
grees of expensiveness as they actually attain to, as ne 



22 ECONOMICS. 

cessary to the maintenance of the labor by which the 
economical machinery of the world is worked. It is true 
that nearly half the human race are in infancy and child- 
hood^ and as yet not only unable to perform any labor, 
but requiring the whole labor-power of one parent to 
rear and care for them. But it is as necessary that the 
wants of children should be supplied in order that the 
ranks of efficient laborers should be kept full, as it is that 
a power-loom should be built before one can weave with 
it. You might just as well contend that a power-loom in 
process of construction is not capital, as that a healthy 
new-born infant is not a laborer, or that the man who is 
making a power-loom is not a laborer, as that the 
mother who is rearing that infant is not a laborer. 
Whatever therefore is expended in rearing children is 
as truly capital employed in supporting labor, as the 
wages given to the laborer of to-day for the work of 
to-day. 

Many are incapacitated for labor by disease or the 
decrepitude of old age. These must be supported in 
consideration of the work they have done, or would do 
if they were able. In our arrangements for the support 
of labor, we must not forget our social nature. Mutual 
support is as necessary to the working of the economical 
machinery of the world as individual support. It is as 
necessary that the laborer should sustain his decrepid or 
disabled parent, child, brother, sister, as that he should 
eat or wear clothes. 

§ 20. It is true that many live more expensively than 
is absolutely necessary to the performance of labor. But 
we have already seen that in the view of the economist 
it is very desirable that all should do so. The princi- 
ples of a true economy abundantly recognize it as fit and 
wise that the support of the laborer should imply not 
only such a supply of the bare necessaries of life as will 



CAPITAL. 23 

keep the machinery of bones, sinews, muscles and nerves 
in working order, but all the conditions of a proper hu- 
man life. 

If it is still asserted that, beyond all that these con- 
siderations embrace, there is a vast waste of the wealth 
of every community ; our reply is, that the true economist 
will acknowledge this, and unite with all good men in 
deploring it. But all he can do about it is to wish that 
men may become wiser and therefore happier. Their 
lack of wisdom however cannot modify his science. If 
all which is expended in the gratification of human de- 
sire, is not the fit and proper reward of labor, the reason 
is to be sought, not in the structure of the economic ma- 
chine, but in the follies of men. 

We are justified therefore in the position, that for all 
the purposes of our science, the sole function of all accic- 
mulated results of human labor is to support and assist 
labor and render it efficient. It is therefore properly all to 
be 7'egarded as capital. 

§ 2 1. Let us next inquire how this is accomplished. 

First, Every laborer has vmitediate 7vants which must 
be satisfied while he is perfoj^ining his labor^ and waiting 
for the mature results of it. The supply of these must 
come from the results of pre-exerted labor. Man is not 
like the bird of the air that makes a breakfast of the 
insect, the worm or the seed it has eve^n now picked up. 
He must for the most part live to-day on the results of 
the labor of previous days, and the labor of to-day must 
supply the subsistence of coming days. This is one of 
the reasons why he is made capable of foresight and 
accumulation. The first function of capital is to sustain 
the laborer while he is doing his work. 

Second, Man can do nothing without a tool. The 
savage must have his bow and arrows. Every tool is a 
product of a rational soul. Human life is impossible 



24 ECONOMICS. 

except as man employs his rational powers in devising 
and executing contrivances by which he engages the 
forces of the material world to aid him in accomplishing 
his ends. Every tool, from the bow and arrows of the 
savage upward, is such a contrivance. No man can have 
a tool to aid the work of the moment, except as the pro- 
duct of some previous labor. Of all the millions who 
are to-day performing the labor of the world, very few 
could be found who had not tools in their hands, without 
which the results they are aiming at, either could not be 
accomplished at all, or if at all not without greatly in- 
creased difficulty. The amount of wealth invested in 
such tools at any one time is enormous. 

The second function of capital is to supply each indi- 
vidual laborer with necessary tools. 

Third, The time is past in which the needs of society 
can be supplied by those simple tools which have for the 
most part sufficed for past generations. The demand 
has now become imperative for those complicated ma- 
chines for increasing the efficiency of labor, the use of 
which is one of the grandest characteristics of this 
modern age. In principle a machine does not differ at 
all from the simplest tool, as a knife, spade, or hammer. 
Both are alike arrangements for rendering the natural 
forces around us the helpers of our toil. The difference 
is only in the scale on which this is accomplished. The 
machine is often as complicated and costly as the tool 
is simple and inexpensive. It is only when we contem- 
plate the vast outlays of wealth demanded by modern 
manufactures and locomotion, that we begin to form a 
just conception of the importance of capital to human 
well-being. It is doubtful whether the wealth of the 
Roman Empire in its palmiest days would have sufficed 
to construct the railways of the United States. 

The third function of capital is to encourage theinven- 



CAPITAL. 25 

tio7i and provide for the constriictmi of the complicated ma- 
chines which have become a necessity of civilization. 

§ 22. We have no difficulty then in discerning the 
purposes which capital is intended to accomplish in the 
economic system. Every human being is intended to be a 
laborer^ to affect moi^e or less of changes which should be con- 
ducive to himian well-being. Every laborer is intended in 
nature's plan to receive such a support from the results 
of his labor as will enable him to lead a true and proper 
human life. All labor is to be assisted by such tools as 
human genius can invent, for rendering natural forces to 
the utmost possible extent helpful of human effort. 

It must also be kept in mind that man's power to 
labor is applicable, and is designed to be applied to the 
entire development of a perfected humanity. He who 
exerts his God-given powers in aid of the true culture of 
the intellectual, social, esthetic or moral nature of man 
is no less a laborer in the view of a true economy, than 
he who makes corn to grow, where without his labor 
none would have grown. To aid, encourage and reward 
such labor is no less included in the true function of 
capital than to aid in tilling the soil. A true system of 
economics has no more difficulty in finding a place for 
the labors of a Raphael, or a Michael Angelo than for 
the building of a railway or a steam engine. 

§ 23. Nor will our view of the subject be adequate 
without a full recognition of the principle, that both labor 
and capital are quite independent of the nationalities, 
the political divisions of the earth. In the grand aggre- 
gate, wealth in all its forms is a God-given patrimony 
of the human family. In the present condition of econom- 
ic science, it is not to be expected that this proposition 
will be believed, unless it can be proved, but we think 
the proof is easy. This is certainly not the stand-point 
from which economists are accustomed to view the sub- 



26 ECONOMICS. 

ject j but is it not the stand-point from which it must be 
viewed, to be seen truly? The question which to a 
great extent writers have had in mind is, — how may a 
nation grow rich ? We claim that the true question is, — 
how may men grow rich? How may any man of any 
nation increase in wealth most rapidly? If we have a 
science of economics it must be universal. If it is a 
science it will develop an economic system, in accord- 
ance with which all men of all nationalities will most 
successfully supply their wants and increase their 
wealth. 

That this is the true stand-point from which to view 
the subject^ is demonstrated by many facts that admit of 
no denial. There is no privilege which the world re- 
gards as more sacred than the right of every man who 
possesses power to labor to exert that power wherever 
he can receive for it the highest compensation. For ex- 
ample, the world is before an American laborer. He 
may go and exert his powers in any spot on the face of 
the earth. National lines have no necessary relation to 
the matter. The only question he is concerned with, is, 
not how his labor can do most to enrich the United 
States, but where on earth it is most wanted, as indi- 
cated by the fact, that in that spot it will command a 
higher compensation than in any other. His labor is a 
part of the world's wealth, and not of American wealth ; 
and where he finds the world most wants it, he will 
spend it. Labor is then a human and not a national 
patrimony. No American thinks of complaining because 
labor of American birth and training is found in almost 
every nation under heaven. This is just as it should be. 

The same is true of capital. No man in his senses 
would think of confining the capital of England to her 
own island. It is a part of the universal patrimony. It 
is only necessary to convince an English property- 



CAPITAL. 27 

holder, that an investment in a canal across the Isthmus 
of Suez, or in a railwa}^ in India, or across the Rocky- 
Mountains, will pay better than any he can make in Eng- 
land, to secure such an investment without delay. Capi- 
tal has in itself a sort of consciousness that it is cosmo- 
politan, that it has and can have no nationality. Eng- 
lish capital and Irish and German labor build American 
railways and American cities, and American capital 
runs a line of steamers far up into the heart of China. 
The fact that both capital and labor have in themselves 
such a consciousness of their human and universal rela- 
tions and destiny is surely a sufficient reason why the 
science that treats of them should be universal also. 

§ 24. There is no assignable liiJiit to the possible increase 
of the efficiency of labor by tht aid of capital. As long as 
there is any surplus above bare necessaries, there will 
always be some tendency to convert circulating capital 
into fixed capital. Men will always seek to accomplish 
their ends with the least possible exertion of their own 
powers. If one performs with his own hand the labor he 
needs, he will find it irksome, and be always looking 
around him for the means of making it easier. If he 
employ the labor of others, he will wish to use as little 
as possible, in order that his own gain may be greater. 
Any means therefore will always be in demand, by which 
a given desired result can be attained by less labor. 
Some men will therefore find inducement to devote 
themselves to inventing and constructing fixed capital. 
As these men must, like every other human being, live 
on circulating capital, they are engaged in changing cir- 
culating capital into fixed capital. 

In a general view of the case, it would appear that 
the result of this must be two-fold, and it will appear 
from a thorough examination of the whole subject that 
this view is correct. 



28 ECONOMICS. 

First, // will increase the efficiency of existi?ig labor ^ and 
render the surplus of circulating capital above bare necessa- 
ries greater than before. This will increase the motive to 
convert circulating, into fixed capital; for there will be 
more circulating capital than is needed, and some of it 
must be converted into fixed capital, or be useless. No 
one can assign any limit to this process. 

Second, Such a co?iti?iually increasing supply of circu- 
lating capital as must result from this, must render the 
satisfaction of all human want easier^ and maiikind richer, 
and, if they are wise, happier. Other questions however 
here arise. Will not this render the capitalist in a great 
measure independent of the laborer, diminish the de- 
mand for labor, and thus reduce its wages 1 Will not 
this progressive increase of fixed capital set the extremes 
of society more remote from each other than ever ? 
Will it not make the rich man richer, and the poor man 
poorer? Will not the owner of a powerful labor-saving 
machine be able to dictate wages to his laborers, and 
prices to his customers ? Will not society be divided be- 
tween boundless wealth and abject poverty ? 

To answer these questions belongs to Distribution, 
and the consideration of them must therefore be deferred 
for the present. If our science cannot at the proper 
time return a satisfactory answer to them, it is surely a 
prophet of evil and can afford us very little comfort. 

§ 25. To this indefinite increase of fixed capital, there 
seems however to be one very important exception, at 
least in respect to labor-saving machinery. It can have 
no such indefinite multiplication in the department of 
agriculture as in many other branches of industry. The 
reason is found in the nature of the case. In manufac- 
turing industry, or in locomotion, a machine may be 
kept in constant use, and thus yield a constant income. 
In agriculture no machine can be used for more than a 



CAPITAL. 29 

portion of the year, most machines only for a few days 
of the year, and must not only be quite useless for the 
remainder of it, but involve expense to protect them from 
injury. If the machines used in manufacturing could be 
employed but three weeks in the year, and must be fur- 
nished with house room for the rest of it, most of them 
would be quite worthless. This is an inevitable and' a 
nearly fatal drawback to the profit to be derived from 
agricultural machinery. It is admitted by those practi- 
cally acquainted with the subject, that most of the agri- 
cultural machines now in use do not much diminish the 
expense of the processes to which they are applied. 
They are chiefly important, because it is impossible to 
command a sufficient number of laborers to accomplish 
certain processes in the season of them. There doubt- 
less are some machines of which this is not true. But 
even in respect to them, the fact that they must be use- 
less for ten or eleven months in the year detracts so 
much from the profit of using them, that they become, 
as compared with manufacturing machinery, of small 
importance, and can never very greatly affect the cost 
of tillage. 

The fixed capital of agriculture is land itself, sub- 
dued and fitted for cultivation, and its improvement 
must consist chiefly in the discovery and application of 
better methods of increasing its fertility. But as wealth 
and population advance, a vast outlay of capital will be 
justified and required for subduing new lands, and sub- 
jecting them to cultivation. The subject of rent is to be 
examined hereafter. It is necessary to say at this point, 
that the cause which extends the area of cultivation with 
the progress of capital and population, is the fact that 
an increased demand for food and a lower rate of inter- 
est will render increasing outlays of capital in subduing 
land not hitherto brought under cultivation profitable 



30 ECONOMICS. 

modes of investment. It is always costly to remove the 
obstructions whicli naturally stand in the way of culti- 
vation. The greater the demand for food, and the lower 
the rate of interest, the greater will be the expenditure 
of capital for this purpose. On the Atlantic slope of 
this continent are many millions of acres of land, which 
in their present condition will never yield anything. But 
should our population be very greatly increased, and our 
rates of interest decline to such rates as are now paid 
in England, these lands would justify and reward a suf- 
ficient outlay of capital to render them highly productive. 



CHAPTER III. 

Capital a Universal Patrimony. 

§ 26. The principle implied in the heading of this 
chapter has been already asserted, though without any 
argument in confirmation of it. On the other hand the 
fundamental law of the science already enunciated sub- 
jects all possible wealth to an exclusive individual own- 
ership. How can it be made to appear that these two 
principles are possibly consistent with each other? It 
is quite necessary that we answer this inquiry, or retract 
one or both of our previous assertions. Our answer is 
contained in the following proposition, viz : 

By the law of individual ownership^ the use and benefit 
of all existing capital is more perfectly secured to the whole 
human family than it could be imder any other conceivable 
arrangement. The very nature of ownership insures this 
result, not only in respect to capital, but in respect to 
both forms of wealth. This proposition occupies a very 



CAPITAL A UNIVERSAL PATRIMONY. 3 1 

central position in the science of economics, and must 
be clearly established. 

Regarding every man's power to labor as an element 
in the world's wealth, — or if we for a moment assume 
that it may be so — we should readily admit, that the 
first use' to which the results of his labor should be 
applied would be self-support, to preserve himself in 
working order, tc save his power to labor from being im- 
paired or extinguished. We should admit this if we had 
reference to the general good only, just as we should 
admit that the first use to be made of the profits of a 
steam flouring mill should be to keep the mill in perfect 
repair, in order to render it as useful as possible to the 
public. Such a use of the first products of labor would, 
on the supposition we have made, be in perfect accord- 
ance with the law we are proposing to substantiate. Let 
us now make the additional supposition, that the laborer 
in question produces a surplus above self-support; he 
owns that surplus and will of course employ it according 
to his own judgment, for his own advantage. There is 
but one way in which he can use it for his own advan- 
tage. He must use it to assist labor. The product of 
his labor will thereby be increased, and as he does not 
himself need that which will be produced by the addi- 
tional labor which he will thus be able to perform, he 
must and will employ it in producing that which some- 
body else wants. His own highest' advantage will be 
secured by producing that which is more wanted than 
anything else within his power. He is compelled by the 
very nature of ownership, as the only possible means of 
securing the gratification of his own desires, to produce 
precisely that which the world most needs, or at least 
believes that it most needs. By the very law of owner- 
ship, the addition which he has made to his own wealth 
must also be an addition to the common patrimony of 



32 ECONOMICS. 

the human race. He can only use it as his own*, by- 
using it in producing that which will supply the want of 
which the world is most conscious. It may be that that 
want exists on the opposite side of the globe, and that 
to get the advantages which he is to derive from his 
newly acquired wealth, he must send the products of his 
labor to China or Japan. He will dispose of them in 
the spot where he finds the greatest conscious need of 
them to exist. To make his capital most his own, min- 
ister most to his own advantage, he must be the servant 
of mankind. 

§ :27. Let us now apply this principle to such a vast 
estate as that of the late A. T. Stewart. There are 
questions with respect to the relations of such an estate 
to general economic interests, which we are not prepared 
to meet at this stage in the development of our subject. 
It is asserted, not perhaps without reason, that such 
great accumulations of capital under the control of a 
single mind are capable of being so used as to suspend, 
at least temporarily, the natural law of competition. We 
must defer any inquiry into such a liability, till the law 
of competition shall have been unfolded, as it will be in 
a subsequent part of this treatise. Waiving that ques- 
tion for the present, it is plain that such an estate may 
be conceived of as divided into two parts, one of which 
shall consist of all that portion of the estate which the 
proprietor used for the gratification of other desires than 
that of gain, the other and very much larger portion of it 
which he employed as an investment, for the increase of 
his wealth. It is obvious in respect to the part last 
mentioned, that it was made, through his ownership, 
strictly a portion of the world's common patrimony. 
Mr. Stewart was the treasurer of it, to manage it for the 
benefit of mankind. There may have been no philan- 
thropy at all in his intentions. He may have been 



CAPITAL A UNIVERSAL PATRIMONY. 33 

wholly governed by the hard, cold greed of gain. But 
he could gain nothing from it except by employing it in 
'supplying the wants of mankind ; and he could make 
the greatest possible gain from it, only by using it in 
providing a supply of those wants of which the great hu- 
man family was most intensely conscious. The success 
of his vast enterprises would of necessity have been 
directly and exactly proportioned to his sagacity in dis- 
cerning what and where that greatest conscious want 
was. He meant not so perhaps, neither did his heart 
think so, but the very law of ownership compelled him to 
be, to the full extent of all which he employed for the 
purposes of gain, simply and only a treasurer, and as 
skillful a treasurer as possible for the general good of 
the race. The law of ownership and the love of gain 
with which he was endowed combined to compel him to 
manage that great estate for the benefit of his fellow- 
men. So far therefore as the capital of the world is em- 
ployed by its owners for the gratification of their love of 
gain, it must be used both to aid and reward labor, and 
to employ that labor as efficiently as possible in produc- 
ing that which mankind are most consciously in need of. 
§ 28. Let us now see how the case stands in respect 
to that part of his property which he used for the gratifi- 
cation of his own taste and desires other than that of 
gain. We must in the first place bear in mind that Mr. 
Stewart was no less a laborer than the clerks that stood 
behind his counters. It was no contemptible service 
which he performed for mankind, in managing for their 
benefit a property of many millions of dollars. If his 
vast property had been owned by a joint-stock company, 
the stockholders would have been only too glad to pay 
a very large remuneration to a man of such financial 
talent as Mr. Stewart possessed, to act as their manager. 
The labor which he performed was of a kind which al- 
2* 



34 ECONOMICS. 

ways commands the highest compensation, according to 
a natural law of wages to be hereafter explained. In 
that view alone it would be difficult to prove, that the* 
compensation which he received for his labor was at all 
extravagant. The most careful examination might 
show, we think it would show, that he managed that 
whole vast property for the supply of human want for a 
very small remuneration. 

Again it must be borne in mind, that those persons 
who use large means for the satisfaction of their own 
desires, are, like the rest of mankind, esthetic beings, 
and will therefore expend much upon objects of beauty. 
Many of those objects will be open to the view of all the 
world, and can be enjoyed by millions as well as by the 
owner. Mr. Stewart's late residence, for example, on the 
corner of Fifth Avenue and Thirty-fourth Street, is an 
object of interest to every visitor of New York from 
whatever land he comes. But for the large income of 
men of wealth, the beautiful domestic architecture which 
is more and more adorning, not only our cities and large 
towns, but even our villages and farms, would never have 
any existence. What intelligent man does not rejoice 
that there is a provision in nature's economic system for 
thus thickly strewing over the face of the earth the glo- 
rious charm of beauty ? What man whose memory runs 
back to fifty years ago would willingly consent that our 
domestic architecture and landscape gardening should be 
put back again to the condition in which they were at 
the beginning of that period ? Does not every one feel 
that it would be a sad loss to the whole community? 
Such would be the fact, if men of wealth had not the 
means of gratifying their love of the beautiful. All 
things considered, it would be difficult to show that the 
outlay for such purposes is at all in excess of what a re- 
gard for the general welfare would require. 



CAPITAL A UNIVERSAL PATRIMONY. 35 

Even in respect to those objects of beauty which 
adorn the interior of a rich man's dwelHng, though they 
are covered from the view of the million, they are 3-et 
seen and enjoyed by multitudes, and through their influ- 
ence become instruments of general culture and happi- 
ness. The existence of such objects of beauty is there- 
fore by no means valueless to the whole human family. 
We cannot however forbear expressing in this place our 
disapprobation of all those usages in society which tend 
to exclude the multitude from the enjoyment of whatever 
is beautiful in natural scenery, landscape gardening and 
architecture. It is to be hoped that in our country high 
stone walls will never shut out not only the feet but the 
e3^es of the multitude from those combinations of natural 
scenery, artistic ornamentation, and elegant architecture 
by which men of wealth seek to gratify their love of the 
beautiful. 

We have therefore sustained our proposition, that by 
the very nature of ownership the possessors of this 
world's wealth are made to hold their property as the 
treasurers of the human race. Some of them may have 
become treasurers by fraud and robbery. Our science 
has no smile of approval for them, any more than for 
other usurpers of positions of place and power. But all 
those who have acquired their possessions by fair and 
legitimate means have been made treasurers, not by pop- 
ular election or by appointment from any of the higher 
powers of the earth, but by their wisdom, industr}^, and 
skill in affairs, or in other words by proving their fitness 
for the high trust. If at any future time they become 
reckless and improvident, or transmit their estates to 
children who are so, their wealth will slip from their 
hands ; they will be forced to abdicate their treasurer- 
ship by showing their unfitness to discharge the trust 
reposed in them. 



36 ECONOMICS. 

§ 29. It may be said these treasurers are often un- 
faithful and abuse the trust committed to them. This 
cannot be denied. But human imperfection mars all the 
works of man. If any one thinks he has a valid objec- 
tion to this order of things, it were well for him very 
seriously to consider, whether he can suggest any other 
arrangement, which would afford as good security as we 
have under the present system of individual ownership, 
that the wealth of the world would be faithfully applied 
to the supply of human want. Doubtless rich men might 
often manage their affairs much better for their own 
good, and much better for the general good than they 
do. But for the mismanagement of the great common 
patrimony which really occurs, the masses are far more 
responsible than the few rich men that own most of the 
property. The masses often fatally misjudge of their 
own real wants, and demand that the capital of the world 
shall be employed in supplying wants which are imag- 
inary and false, and the supply of which is not beneficial 
but hurtful j instead of furnishing those things which 
tend to the promotion of real well-being. Of this the 
enormous trade in alcoholic stimulants furnishes a very 
sad example. When the people learn rightly to estimate 
their own wants, this trade will decline from its present 
enormous magnitude to very small dimensions. 

§ 30. This view of the functions of capital would be 
quite defective if it did not embrace one further con- 
sideration. A treatise on the science of Economics has 
nothing to do with questions of duty. But it is not in- 
appropriate here to remark, that there are great public 
interests which can be provided for only by the munifi- 
cence of the wealthy ; and that in all the countries of 
modern Christendom, such interests have been largely 
so cared for. Every wise man, if by the possession of 
capital he is made one of the world's treasurers, will 



DIVISION OF LABOR. 37 

recognize it as one of the privileges of his high position, 
that he may enjoy the luxury of practicing an enlarged 
and generous philanthropy. The more society is cul- 
tivated and morally improved, the more will men of 
wealth become the benefactors of the human family, not 
only from necessity under the impulse of the love of gain, 
but also from the promptings of a philanthropic spirit. 

§ 31. In our examination of the functions and uses 
of capital, we have therefore found good solid founda- 
tions for the following positions ; that the one object of 
all capital is to reward and assist labor ; that it is not 
national or political, but universal and human in its func- 
tion and destiny ; that it is a common patrimony given 
to the human race by the Creator, compelled to be so 
used by the law of ownership and the nature of man; 
that its owners are the world's treasurers, designated to 
their high trust by having given evidence of possessing 
such skill and wisdom as fit them to discharge it j and 
that there is in the nature of man and his relation to 
things around him, provision for its indefinite increase 
to supply the growing wants of a progressive civilization. 



CHAPTER IV. 

Division of Labor. 

§ 32. Man was made for society, and society is ren- 
dered possible only by the mutual dependence of those 
who compose it. Division of labor is the necessary 
result of this great social law of our constitution. The 
most primitive and fundamental manifestation of it is 
found in sex, creating the necessity of marriage and the 
mutual relations of husbands and wives, parents and 



38 ECONOMICS. 

children. In this most natural of all societies, each 
member has his function, and each is happy not by his 
own independent efforts, but by the mutual helps and 
services of all. Such in principle is all human life. 
The man who should emancipate himself from this de- 
pendence, do all for himself and nothing for others, would 
sink lower than savage life ; he would become a solitary 
wild beast. A flock of sheep or a herd of buffalo could 
teach him lessons of civilization. 

Two well established principles of human nature 
combine to the same result. First, Individuals are very 
differently constituted as to their powers and capacities. 
One man has strength of muscle, and power of endu- 
rance. Another has tact, pliancy of muscle, delicacy of 
touch, and exactness of adaptation. Another still has 
peculiar mental endowments, such as insight, the power 
to analyze the most complicated wholes into their sim- 
plest parts, and to combine many parts into new and 
beautiful or eminently useful wholes. The more men 
are civilized, developed, cultivated, the more these differ- 
ences become apparent and the more they are multi- 
plied. Each of these natural endowments constitutes a 
fitness for doing some things, and often a corresponding 
disqualification for doing other things. Those natural 
endowments which perfectly qualify woman to perform 
her function in the domestic society, disqualify her to 
sustain those severe labors by which a family is fed and 
clothed and housed in circumstances of comfort and 
abundance. Every human society is in like manner a 
whole made up of very dissimilar parts all conspiring to 
a common end. Every man and every woman is to be 
made happy, not by doing every thing for self, but by 
performing well some very limited function, and depend- 
ing for all the rest on many other persons performing 
their limited functions also. 



DIVISION OF LABOR. 



39 



§ ^;^. Second, The other law of human nature referred 
to above is t/ie law of habit. What one does frequently, 
he acquires the power of doing easily and skillfully. 
When therefore one devotes himself exclusively to the 
doing of that for which he has some natural fitness, he 
acquires such dexterity in doing it, that any one who 
wants that thing done can far better afford to pay him for 
doing it than to do it for himself ; and the skilled man 
can accomplish so much more in doing that one thing 
where his skill lies, that he cannot afford to do any thing 
else. In order therefore that labor may be in the highest 
degree efficient, it is necessary that every one should so 
devote himself to some one line of employment, as to ac- 
quire the skill which habit confers, and that each should 
as far as possible employ his labor in doing that in 
which he has greatest skill. 

Arrangements suggested by these two laws of human 
nature have perhaps accomplished more to render hu- 
man labor efficient than labor-saving machinery itself. 
These arrangements are described by the phrase Divis- 
ion of Labor. Of this term we propose the following 

Definition, Division of labor is such a distribution 
of the labor by which the wants of 7?ien are supplied^ that 
each individual may devote himself exclusively to some one 
or to a very few processes. 

Let us now suppose that in a community devoted to 
the cultivation of the soil, every man were accustomed to 
build his own houses and barns, to make his own hats, 
shoes and clothes, his own household furniture and ag- 
ricultural instruments, shoe his own horses, in short, to 
carry on every branch of mechanical labor sufficiently to 
supply all his own necessities, it is apparent at once that 
such a community would be almost entirely deprived of 
all the advantages which are derived from skill. Every 
one's farm must be greatly neglected and could yield 



40 ECONOMICS. 

only scanty products. All other wants would be very 
imperfectly and inadequately supplied. A civilized life 
would be impossible. Every family would be poorly fed 
because farms were poorly cultivated, and they would be 
very badly housed and clothed, and very scantily fur- 
nished in every department, with the comforts and con- 
veniences of life. Every thing men ever did in such a 
community would be very rudely done, without any skill, 
and consequently at a ruinous cost of time and labor. 
Life would be barbarous and WTetched. There would 
perhaps be more equality than in more civilized commu- 
nities, but it would be equality in poverty and wretch- 
edness. 

Let us now suppose that a sufficient number of men 
leave farming entirely, and devote themselves to the va- 
rious mechanical trades, to supply all the wants of that 
whole community. Families will now be provided with 
all the comforts and conveniences of life. Farmers will 
be farmers only, and furnish all the products of the farm 
in such abundance, that they can supply their mechanics 
with all they need of what the farm produces, and still 
have enough for their own families. Every mechanic 
will devote himself to his own trade and thus acquire the 
highest skill and dexterity in it of which he is capable, 
every thing will be produced at the smallest possible 
cost of labor, and all products will be as cheap and as 
perfect as they were before costly and rude. A complete 
revolution has been effected. Before, every thing was 
done without skill, now nothing is done without skill, 
and every one has the benefit of skill. 

As wealth and population increase, what was origi- 
nally a single trade will be subdivided into many. 
Builders will be subdivided into carpenters, masons, 
plasterers and painters ; and other trades after the same 
manner, so that each man may devote himself more ex- 



DIVISION OF LABOR. 4I 

clusively to those processes for which he is naturally- 
best fitted, and may have opportunity to acquire the 
highest possible skill in the single process which he has 
chosen for his specialty. In all progressive civilization, 
this subdivision of trades and professions is constantly 
going on and indicates constantly increasing skill in the 
various departments of labor. 

§ 34. The progress of modern manufactures has de- 
veloped an application of division of labor till recently 
little known. It is a subdivision of the processes of the 
same trade. When for example the working of metals 
had been divided and sub-divided until the making of 
pins was recognized as a distinct trade, it might seem 
that the limit of possible division had been reached. 
But the making of a pin is itself divisible into many dis- 
tinct processes. The wire must be drawn, straightened, 
polished, and cut into pieces of proper length. Each 
pin must be sharpened and headed, and placed upon the 
paper. Each of these processes might be assigned to an 
operative, who should conduct it, and do nothing else. At 
one stage in this branch of manufacture this arrangement 
v/as carried out we believe, in practice. Since the in- 
troduction of modern machinery, this principle has been 
enormously extended, and with an astonishing increase 
of the efficiency of labor. Mechanical invention itself 
has scarcely accomplished greater results than this skill- 
ful distribution of labor among many operatives acting 
in harmony for a common end. The results thus at- 
tained are among the economic wonders of this modern 
age. 

§ 35. It remains to point out the reasons of the great 
economic advantage thus obtained. 

I. The principle has already been stated that when 
one devotes himself exclusively to a single process, he 
acquires much greater skill in it than is otherwise possi- 



42 ECONOMICS. 

ble. The simpler the process the greater the skill ac- 
quired. If a common mechanic were to attempt to do a 
day's work in heading pins, it is likely he would finish 
but a small number. But when a man heads pins and 
does nothing else, the rapidity of his execution becomes 
something wonderful. It is like the dexterity with which 
the accomplished pianist fingers his keys. A person who 
has not the skill looks on with astonishment. 

2. If all the processes of a given manufacture must 
be performed by the same individual, he must take time 
to learn them all. Perhaps to accomplish himself in all 
parts of the trade he must serve an apprenticeship of 
seven years. But if the trade is divided into seven dis- 
tinct processes, and each process allotted to a single 
operative, he need learn but one of the seven, and can 
therefore accomplish himself for his trade by an appren- 
ticeship of a single year. Six-sevenths of the time 
required to learn the trade and six-sevenths of the 
material wasted by the unskillfulness of the learner 
would thus be saved. 

3. It is also said that much time is saved which would 
otherwise be spent in passing from one process to an- 
other, especially if tools are to be adjusted, or a furnace 
is to be heated up. Some recent writers claim, that 
Adam Smith over-estimated the importance' of this 
advantage. 

4. Another advantage is certainly real and important. 
When the fabricating of a given product is thus analyzed 
into its distinct processes, all these processes will not be 
found to require labor of the same grade of skill and effi- 
ciency. Some will require the highest order of work- 
manship. These may be assigned to workmen who 
receive the highest compensation. Other processes 
may require labor of only the lowest grade, and there- 
fore receiving only the lowest rate of compensation. 



DIVISION OF LAI50R. 43 

By division of labor each process may be compensated 
according to the grade of workmanship which it requires. 
But if one man must perform all parts of the work, he 
must be paid for his highest skill and efficiency, though 
employed in processes in which the cheapest labor would 
suffice. Thus division of labor gready reduces the cost 
of the matured product. 

It is also important to mention, that in this way di- 
vision of labor furnishes suitable employment to many 
persons who would otherwise have no employment at all, 
because they are quite inadequate to the more difficult 
parts of the work. Much labor is thus rendered produc- 
tive which would otherwise remain unemployed. Wo- 
men and their special advocates often complain that 
modern economics do not properly reward women's 
work. This subject will be discussed in its proper 
place. It is evident however at this stage of our discus- 
sion, that to division of labor they are to a great extent 
indebted for the fact that they have any employment at 
all, outside of the domestic circle. 

§ 36. Division of Labor is in its possible application 
subject to several important limitations, some of which 
are the following : 

1. The nature of the process. When any work to be 
done has been so analyzed as to divide it into the great- 
est possible number of distinct processes, and each of 
these processes has been allotted to an individual opera- 
tive, division of labor can be carried no further. If 
more laborers are to be employed, the number employed 
must be some multiple of the number of processes into 
which the work has been divided. But no further divis- 
ion of labor can thereby be accomplished. 

2. The application of division of labor may also be 
limited by the want of sufficient capital. If a man has 
only sufficient capital to support himself and supply the 



44 ECONOMICS. 

tools which he must himself use, he must of course per- 
form all the work with his own hands. This is the rea- 
son why so little division of labor is used in the ruder 
stages of society, when little capital has been accumu- 
lated. The savage whose only capital is his bow and 
arrows can have no division of labor, and he must ad- 
vance many stages on the road to civilization before he 
can make any considerable use of it. This is the reason 
why manufactures cannot be successfully conducted till 
large accumulations of capital have been made. No 
single man and no combination of men which can be 
effected in the earlier stages of a people's progress can 
command for the purpose a sufficient amount of capital 
to procure the necessary machinery and to support the 
requisite number of laborers and the requisite variety of 
skill. Peoples that are in such a condition can never 
compete with those whose capital is abundant. The 
attempt to do so is only the farce of the child playing the 
man. 

3. The possible application of division of labor may 
also be limited by the demand for the product, to the 
fabrication of which it is to be applied. If one man 
working by himself can supply the whole existing de- 
mand, he cannot afford to resort to a division of labor. 
It maybe that two men dividing the work between them 
might produce three times as much product as one man 
working alone. But as there would be no demand for 
two-thirds of the product thus furnished, there would be 
no advantage in producing it. For this reason also, di- 
vision of labor can be little used in the ruder states of 
society. Population is sparse, capital is scanty, and 
therefore the demand for most products is so small that 
it can be supplied without much division of labor. As 
population multiplies, capital increases and facilities for 
communication between remote districts are made abun- 



DIVISION OF LABOE. 45 

dant and cheap, the demand for all articles of comfort, 
beauty and luxury will be constantly multiplied, and di- 
vision of labor will be more used, and higher skill in 
every department of production will be attained. All 
men will be more skillful in their work, all products more 
abundant and of better quality, and the whole commu- 
nity more civilized, richer and happier. 

§ 37. It is stated by many writers that the principle 
of division of labor is applied between nations as well as 
between individuals. This is certainly not scientifically 
accurate. Nations are not, in the economic sense, la- 
borers. It is not easy to see that they have any econom- 
ic function, except to secure to all their subjects freedom 
to exert their natural powers without any molestation, 
and the most perfect enjoyment of their own products. 
In the proper place it will be shown, that for this service 
they are entitled to the loyal support of all who live 
under their protection. 

Division of labor is not, however, naturally limited 
within any national lines. Like every other element of 
our science it is human, not national. Those laws of 
human nature from which it springs act without the 
slightest reference to the boundaries of nations. The 
law holds good everywhere, that every man should use 
the products of the highest skill and the greatest natural 
advantages for the supply of his wants wherever they 
may be found. Not to do so, tends not to the advance- 
ment of civilization, but to the perpetuity of barbarism. 
Division of labor however occurs in all cases, not be- 
tween one nation and another, but between individuals 
of every nation irrespective of nationality. We send our 
products to the north and the south, to the east and the 
west in search of the best market which the world af- 
fords ; and we receive in return the fruits and spices of 
the tropics, the manufactures of England and France, 



46 ECONOMICS. 

and the furs of Russia and Sweden. If we are wise we 
shall procure every thing where it can be procured most 
cheapl)^, and in greatest perfection. Such a division of 
labor among all the inhabitants of the earth is accordant 
with the intention of the Creator as indicated in the con- 
stitution of man, and a beautiful illustration of the 
brotherhood of the human race. Any nation incurs a 
most serious responsibility by interfering with these 
fraternal relations, except for reasons of the most cogent 
necessity. Whether such necessity exists, we shall in- 
quire in the proper place. 

§ 38. Some writers are inclined to attach a good deal 
of importance to what they have called the Combination 
of Labor. This is either simple or complex. It is sim- 
ple when several laborers combine their strength to do 
the same thing. This takes place when something is to 
be done for the doing of which the powers of a single 
individual are insufhcient. He naturally provides for 
combining the efforts of other laborers with his own, and 
thus securing sufficient strength to accomplish the end 
he has in view. Such combination is a very common 
occurrence in every civilized community, and is so per- 
fectly simple and natural, and so much a matter of 
course, as not to require any special attention in this 
place. 

Complex combination of labor is the cooperation of 
many individuals conducting diiferent processes, in ac- 
complishing a common result. Thus the cotton planter 
in Louisiana, the cotton spinner in Manchester, the car- 
rier who transports the cotton from the planter to the 
manufacturer, and all persons engaged in fabricating 
machinery, and probably many other classes of laborers, 
all combine their labor to produce a single yard of cotton 
cloth. But this is only division of labor viewed under 
another aspect. If the movement of thought is from the 



DIVISION OF LABOR. 47 

circumference of the Circle towards the centre where the 
result is completed, it is combination of labor ; if from the 
centre towards the circumference, it is division of labor. 
The combination of labor sustains the same relation to 
the division of labor, that the distance from New York to 
Boston does to the distance from Boston to New York. 

§ 38^. Writers have insisted on several classifications 
of labor which have no scientific significancy, and there- 
fore embarrass and confuse the student rather than in- 
struct him. Ours is not a science of mere classification, 
but of causes and laws ; and no generalization is of any 
value in it which does not aid in the discovery or the 
definition of causes and laws. Of this character is the 
distinction of labor as that of the body, from that of the 
mind. All human labor, even the simplest, is in greater 
or less degree the labor of the mind. It cannot be per- 
formed without the constant exertion of human intelli- 
gence. No brute animal can be trained to the simplest 
processes, not even to gather and pile stones. Mind 
dominates over it all. It is true indeed that some kinds 
of labor require much higher intelligence than others, 
and some processes are purely mental, as those of dis- 
covery and invention. But this is a consideration of no 
special economic significancy. 

In like manner, the division of laborers into the three 
classes, — discoverers, inventors, and operatives, conducts 
to no important results, and does not extend our knowl- 
edge of the forces with which we are concerned. A man 
seldom confines himself to either of these departments. 
Operatives have sometimes made the most valuable in- 
ventions, and inventors have often been discoverers also. 
Much the same may be said of the division of industry 
into the three departments of agriculture, manufactures 
and commerce. Those forces and causes which have 
already been explained as stimulating and aiding pro- 



48 ECONOMICS. 

duction, alike pervade and dominMe them all, and ac- 
count for the phenomena which they present. We think 
therefore that by insisting on these distinctions we 
should perplex and confuse rather than instruct the 
student. 



PART II 



EXCHANGE. 



CHAPTER I. 

Value. 

§ 39. In our discussion of the forces concerned in 
Production, it has been all along assumed that laborers 
must to a very large extent exchange their products with 
each other. A man that makes hats must have food 
and clothing for other parts of his body than his head. 
If he makes nothing but hats, he must supply other peo- 
ipie with hats, and receive from them in return other 
things which he needs ; or his hats, except an occasional 
one for his own wear, will be of no use to him. We 
have now reached that point in the development of the 
subject, where it is necessary to explain the nature of 
exchange, and the laws by which it is governed. 
/ '^'' Definition. Exchange is the voluntary tra7isfer of the 
I owne7'ship of some ite7n of wealth for the ow7iership of 
so77iething else regarded by both parties as equally desirable. 
It is believed this definition will be found to be ac- 
curate and exhaustive, and in perfect consistency with 
our definition of wealth. It matters not whether the ex- 
3 



50 ECONOMICS. 

change be of labor for labor, or of labor for some 
product of labor, or of one product of labor for another, 
or what the nature of the products to be exchanged may 
be. It is in every case an item of wealth for another 
item of wealth, regarded as equally desirable, with the 
voluntary consent of both owners. 

§ 40. As soon as one finds himself in possession of 
something which he desires to exchange for something 
else of which another person is the owner, the question 
at once occurs to him, — how much of mine must I give 
for what I desire of his ? If I make hats, and wish to 
exchange them for wheat, the question is, — how much 
wheat for a hat ? That for which one is inquiring 
when he asks this question, is expressed by the word 
Value. What is the value of a hat ? What is it worth ? 
We can proceed no further in the development of the 
science till we have defined this word. Nowhere else 
has so much confusion of thought found its way into 
the discussions of economists, as in respect to the mean- 
ing of this word. There can be no science of Econom- 
ics without an exact and scientific definition of value. 
If we succeed in framing such a definition, the remain- 
ing part of the task which we have undertaken will be 
comparatively easy and plain. If we fail in the attempt 
It were better to prosecute the undertaking no further, 
for it can result in nothing but confusion and endless 
controversy. 

§ 41. We cannot however give the needed definition 
of value, till we have introduced to the reader's notice 
another great law of nature of which we have hitherto 
said nothing. We refer to the law of competition. 
Through the remaining portion of our science, this law 
must be our constant guide. 

The law of competition results directly from the 
fundamental law, out of which we said in the outset 



VALUE. 51 

the whole science should be developed. Every man 
owns himself and all which he produces by the volun- 
tary exertion of his own powers. What he owns he not 
only may, but he always will use as he desires. It fol- 
lows of course that what he does not want himself, but 
desires to exchange for some object of desire owned by 
another, he will so exchange as to obtain for it as much 
gratification of his own desires as he can. If he wants 
to exchange hats for wheat, he will inquire what is the 
largest quantity of wheat which any one will give him 
for a hat, and with the man that offers him the largest 
quantity he will exchange in preference to any other. 
He will refuse to make any exchange at all till he 
thinks he has found the man that will give him more 
than any one else, or at least as much. It is as much 
a law of nature that exchanges should be conducted in 
this way, and not in any other, as it is that the planets 
should move in elliptical orbits, and not along the 
bounding lines of a square or parallelogram. When 
men conduct exchanges thus, they are not acting 
meanly or selfishly, but they are obeying a law of na- 
ture, as truly as a heavy body obeys a law of nature by 
falling when it is unsupported. This law of nature is 
competition. We propose the following : 
/ Definition, Competition is that laiu of Jucman nature 
py which every man who makes an exchange will seek to 

I obtain as mu,ch as he can of the wealth of another for a 

i given amount of his oivn wealth. 

It is to be kept in mind that we are not teaching 
ethics. We do not say that a man has a right to buy 
as cheaply as he can, and sell as dearly as he can, but 
that by a law of his nature he not only will but must 
do so. It is not a case of moral choice at all. Where 
two objects of desire do not differ at all in kind, but 
only in quantity, it is as natural for us to accept the 



52 ECONOMICS. 

greater rather than the less, as for a stone dropped from 
the hand to fall to the ground. We do not mean of 
course, that the buyer will bring every sort of influ- 
ence true or false to bear on the seller's mind, to in- 
duce him to sell cheaply, or that he will seek to exert 
upon him any influence at all. All this our science 
turns over to the teacher of ethics. Competition 
simply assumes that every man knows his own mind, 
and that he who has any thing to exchange inquires 
who will give most for it, and that he who wishes 
to get something by exchange inquires who will sell it 
most cheaply, and buys and sells accordingly. 

If any one says this is not a law of nature, that a 
man will often sell to one man more cheaply than he 
will to another, the answer is, that if such a case oc- 
curs, it is only because the seller has some special re- 
gard for the man with whom he prefers to exchange, 
and is willing to take as a part of the gratification 
which he is to get by the exchange, the satisfaction of 
doing him a favor. It is no exception to the univer- 
sality of the law. He still gets as much gratification 
by the exchange as he can. 

It matters not whether the thing to be exchanged is 
the product of the owner's personal labor, or of some 
other one's labor of which he has obtained the owner- 
ship by gift or exchange, or whether he wishes to ex- 
change his labor for some other man's labor, or his labor 
for some product of the labor of another. In either 
case the law holds in all its force. In competition we 
have a law which is as pervasive of the whole science 
of economics, as the law of gravitation is of the science 
of physical astronomy. He who is engaged in endeav- 
oring to construct an economic system from which com- 
petition shall be excluded, has on his hand an attempt 
which is just as absurd and impossible, as to construct 



VALUE. 



53 



a machine from which all influence of gravitation and 
friction shall be excluded. But more of this hereafter. 

§ 42. Definition, Value is relative desirableness as 
ascertained by competition. 

Value in its technical use is always a relative term. 
Nothing has intrinsic value. It is an absurdity in 
terms. In popular language, we speak of the intrinsic 
value of a thing v/ithout impropriety. We mean of 
course its utility. But utility does not imply value in 
the strict sense. What is more useful than atmospheric 
air .? But it has no economic value. It will bring 
nothing in the market. When we speak of the value of 
a thing in the technical sense, we mean that for which 
it can be exchanged. If it will bring nothing in ex- 
change, no matter how much labor has been laid out 
on it, no matter how useful it is, in the strict sense of 
the word it has no value. 

There are certain words with the use of which it is 
impossible to dispense, which it is necessary to employ 
with technical accuracy-. Before proceeding further we 
will therefore define them. 

Definition, Cost is the amount of labor and capital 
expended on any product. 

Definition, Price is the value of any thing as com- 
pared ivith some specific things regarded as a fit stand- 
ard by which all other values are supposed to be measicred. 

That specific thing in comparison with which price is 
estimated is money, of which we shall speak hereafter. 

Definition, Supply aiid Dematid are correlative 
terms^ indicating^ — the latter., the desire that exists for 
any article of exchange as manifested by readiness to offer 
other things for it, and the former, the amount of the 
article demanded which is ready at any time to be ex- 
changed. 

§ 43. Economists have been much at variance re- 



54 ECONOMICS. 

specting the relation of value to cost. It is therefore 
necessary to examine that question. Value has no 
necessary relation to cost at all. Cost has no power to 
control or determine value. Capital and labor will 
render nothing valuable except as they make it capable 
of gratifying human desire. But men will expend labor 
and capital only in producing that which they them- 
selves regard as more desirable than the labor and capi- 
tal expended, or which they believe others will so re- 
gard. One can command nothing in exchange for any 
product merely in consideration of the cost of it. The 
milliner who has a large supply of ladies' bonnets, will 
plead in vain in justification of her high prices the cost 
of her wares, after the fashion has changed. But noth- 
ing will continue to be produced which for long periods 
is found to be of less value than the cost. Men are 
not fond of laboriously throwing away either labor or 
capital. On the other hand, nothing can for long peri- 
ods maintain a value which is above cost, for some- 
body will always be found ready to produce it at cost. 
Competition will therefore always insure the gravita- 
tion toward cost of the value of all the great permanent 
utilities of life. If a sudden demand springs up for 
any article exceeding the supply, its value will be raised, 
and of course its price enhanced. Labor and capital 
employed in producing it will be more remunerative 
than usual, and more of both will be invested in in- 
creasing the supply. This will go on till the supply 
and demand are equalized. The enhancement in 
price however will in most cases not be permanent, for 
reasons which will be explained hereafter. 

§ 44. No test of value othe?' than that furnished by 
competition is possible. As in mechanics weight is our 
only available test of quantity of matter, so in econo- 
mics competition is our only test of value. The pro- 



VALUE. 55 

position to determine what a thing is really worth with- 
out reference to what it will command in exchange, is 
an absurdity even in terms. Men may have a judg- 
ment of the value of a horse without offering him for 
exchange, but if it is worthy of any confidence it must 
be founded on what it is known other horses of equal 
desirableness have been sold for. It must go on the 
assumption that people will regard another horse as 
equally desirable Avith those which have recently been 
sold. But one can never know it till the test of com- 
petition has been appealed to. The price current is 
not the judgment of any man however sagacious, what 
the commodities mentioned in it ought to be worth, 
but the record of the fact, what they were actually ex- 
changed for. 

It is true that valuable property may be offered for 
exchange, in circumstances in which no one desires it 
at the price which is usually paid for a like article. 
And yet the owner may have so strong a desire to 
obtain something else in exchange for it, that he would 
be glad to part with it at almost any price which any 
one will give him. It may in that case be said that he 
exchanges his property for much less than its real value. 
But if the language has any meaning, it is only that the 
usual value is greater than that at which he exchanged 
it, and that the belief is confidently entertained, that at 
a not distant day, the demand for it will increase so 
that it will command in exchange more than was re- 
ceived for it. That however does not show that the 
present value was not precisely what was obtained for 
it. The anticipated future value of it may differ greatly 
from the present. Probably the purchaser did not want 
it for his own use, and was only induced to purchase it, 
because he believed it would command more in ex- 
change at a future time than now. He purchased for 



56 ECONOMICS. 

the sake of gain by a future exchange, and not to satisfy 
any present want. Its present value- is what it will ex- 
change for now, its future value will depend on what it 
will exchange for at a future time. 

§ 45. It may seem to some a valid objection to the 
universality of the law of competition, that many trans- 
actions of exchange are regulated by custom or law and 
not by competition. If for example I employ a licensed 
hackman, the price which I must pay him is regulated 
by law. Rents in many different countries are regu- 
lated by custom, which has been handed down through 
many successive generations, and with which competi- 
tion does not interfere. The rate of interest on money 
has been and is regulated by law. In these and many 
other cases, competition has apparently and in some of 
them really, no place. This is not the place to con- 
sider some of the questions involved in the examples 
just given. Rents and interest on money belong to 
another part of the subject. But it will be shown in 
the proper place, that whenever rent is regulated other- 
wise than by competition, it is because the fundamental 
laws of our science have been utterly disregarded. An 
immemorial custom is a law. In such cases the nom- 
inal proprietor of the land is only the partial owner 
of it. The tenant is also a partial owner. The pro- 
prietor owns the right of disposing of one-half or one- 
third of the produce, not the right of treating as his 
own and disposing at his pleasure the land and all its 
utilities. The tenant is also a partial owner. He has 
a right to appropriate a certain share of the profits of 
the land. Our science has nothing to do with such an 
order of things. Those natural forces with which it 
has to do have no opportunity to act. The laws of 
human nature are superseded by a custom v/hich origi- 
nated far back in ages of barbarism. 



VALUE. 57 

Much the same may be said of laws regulating the 
interest on money. They are in direct conflict with 
the law of ownership. So our science must regard and 
treat them. They assume to forbid the owner of prop- 
erty to enjoy and appropriate the full benefit of it. 
The economist can not deal with them in any other 
aspect. We must however add that for the most part 
they are a dead letter on the statute book, quite disre- 
garded in practice. 

As to the case of the licensed hackman, he has made 
a contract with the municipal government to carry pas- 
sengers at given rates, and has paid for the privilege, 
and is therefore bound to fulfill the contract he has 
made. If he will surrender his license and the city 
endorsement which that gives him, he may then regu- 
late his charges by competition without any interfer- 
ence of the law. 

The founder of a science becomes illustrious in suc- 
ceeding ages, and justly. Yet it is often true, that the 
reason why the foundations of the science were not laid 
and its superstructure reared in previous generations, is 
found in the fact, that in that age for the first time the 
conditions of the possibility of the science had existed. 
Physical astronomy was not possible, till the labors of 
Tycho Brahe and others had furnished a vast accumu- 
lation of observations, and Kepler had discovered the 
laws of planetary motion. For like reasons our science 
was scarcely possible before the time of Adam Smith. 
Labor and capital were not sufficiently emancipated 
from the despotic interference of governments, and the 
tyranny of immemorial custom, to manifest the laws by 
which they are governed in a free system. From that 
barbarism of the earlier ages, many economic elements 
have not even yet emerged, or if at all, only in a few 
favored countries. Some of the examples given above 
3* 



58 ECONOMICS. 

are illustrations of this remark. It is only in countries 
in which the private ownership of land is understood and 
recognized by the laws regulating exchanges and inherit- 
ance, that the theory of rent can be successfully studied ; 
and the natural laws which govern interest are never 
very apparent, except in countries where the govern- 
ment is wise enough to abstain from interfering with it, 
or else the people intelligent enough to treat the statutes 
which interfere with it as a nullity. In this view of 
things, it is perhaps not wonderful, that the science of 
economics has not reached its perfection in the first 
century of its existence. 



CHAPTER II. 

Fluctuations of Value. 



§ 46. The general aspect presented to the unthink- 
ing mind by those fluctuations of value which are 
always going on around us, is, very analogous to the 
impression made upon us by the wanderings of the 
moon, or the varying directions and strength of the 
atmospheric currents, which we daily experience. In 
the previous chapter we explained the law of competi- 
tion, and showed that it is the force which always con- 
trols and measures value. It is our intention in this 
chapter to show how competition explains and accounts 
for the seemingly capricious fluctuations of value which 
are constantly going on around us. As in the commer- 
cial world all values are estimated by comparison with 
a common standard, money, and as the value of any 
article estimated in money is called its price, we shall 



FLUCTUATIONS OF VALUE. 59 

in this chapter conform to this popular usage, and 
employ the word price instead of value. 

All the fluctuations of price which can occur are 
the results of one of two causes, viz. 

1 . Variation of the cost of Production. 

2. Variation of the ratio between Supply and De- 
mand. 

The cost of Production may be diminished in vari- 
ous ways. 

First, By rendering labor more efficient. This may 
be done by improvements in machinery^ more pafect divis- 
ion of labor., or better methods of applying it. The result 
in all these cases must be to reduce the price of the 
product. If a single producer could introduce any of 
these improved methods, and.confine the use of them to 
his own operations, he might appropriate all the advan- 
tage derived from them to himself, by exchanging his 
product at the same prices which others receive, who 
do not use the improved methods. But such secrets 
cannot be kept, and society offers to the inventor of 
any such improvement a sufficient inducement in the 
form of a patent right, to disclose it to the general pub- 
lic. Competition then begins at once to perform its 
office, and reduce^ prices till cost and value are equal- 
ized. There will never be wanting those who will be 
eager to produce a commodity at a price equal to the 
cost of production. 

The consequence must be the cheapening of the com- 
7nodity whose cost of production has been thus diminished 
to the general public, and thus all men will share the 
benefits of every new invention by which the efficiency 
of labor is increased. The reduction of the price of 
the commodity will proportionally increase the demand 
for it. The reason of this may easily be rendered obvi- 
ous. While the price was high none but the wealthy 



6o ECONOMICS. 

could afford to use it. As its price is reduced the 
wealthy themselves will use it more freely and for pur- 
poses for which it was not before employed, and persons 
in moderate circumstances will be able to afford it. 
The poor and those of limited means are always many 
times more numerous than the rich, and as by reducing 
the cost of production any commodity is cheapened, it 
finds its way into the homes of thousands and perhaps 
of millions who, at its former high price, would have 
been entirely forbidden its use. Competition reduces 
price, till what used to be confined to the homes of the 
rich, becomes abundant in the humble dwellings of the 
comparatively poor. 

It should however be remarked in this place that 
such changes in value as those described in the pre- 
ceding paragraph have not hitherto in the history Of 
the world occurred, except i?i relation to commodities which 
must be considered rather as luxuries than as necessaries 
of life. Should they ever occur in respect to such 
commodities as strictly necessary food and clothing, the 
occurrence would produce a revolution in the fundamen- 
tal conditions of human life which it is not likely can 
ever take place. We have already shown in a previous 
chapter that from the very nature of the labor employed 
in agriculture, it is highly improbable that its efiiciency 
can ever be increased by invention in any such degree 
as has already been attained to in other departments of 
industry ; and from agriculture the necessaries of life 
are chiefly obtained. This subject will be further con- 
sidered in connection with the subject of Rent. 

Second, The cost of producing any commodity in 
any given place may be diminished by increasing the 
facilities of comjnunication with the rest of the world. The 
cost of any commodity at any particular place is the 
cost of producing it added to the cost of transportation. 



FLUCTUATIONS OF VALUE. 6 1 

If by means of increased facilities for transportation, 
the producers of any commodities in remote places are 
able to bring their products into the market at a less 
cost than, that of producing them in the immediate 
vicinity, they will be able to undersell the near pro- 
ducers, and reduce the price of the article. 

Increased facilities for bringing into any market the 
products of distant regions may be provided, by remov- 
ing either artificial or natural obstacles. It may be 
that the laws of a country have hitherto been such as 
to prohibit the introduction of foreign products. The 
removal of these prohibitions will of course enable for- 
eign producers to compete with those at home, and re- 
duce the price of the commodities in the market. Thus 
the repeal of the English corn laws enabled all the 
corn-growers of the world to compete with those of 
England in her markets. If the result has not been 
the reduction of the price of grain in England, it is only 
because the increase of her population has been so 
rapid as to create a demand for the additional supply 
thus furnished, and keep the price nearly stationary. 
It may yet happen, that the pressure of foreign grown 
grain upon the markets of England may be such, as 
actually to reduce the price of the food of her people. 

The same result may be secured by removing natural 
obstructions and providing the means of cheaper and more 
rapid transportation. This is abundantly illustrated by 
the history of transportation in our own country. As 
a consequence of our greatly improved modes of trans- 
portation, the productions of regions a thousand miles 
in the interior of the continent are offered in the mar- 
kets of the Atlantic sea-coast, at prices which are often 
below the cost of producing them in the immediate 
vicinity of those markets, and the price of agricultural 
products in the markets of Great Britain is to a consid- 



62 ECONOMICS. 

erable extent controlled by the competition of the pro- 
ducts of the interior of North America and even of the 
Pacific Coast. The price of grain in our Atlantic cities 
and in the markets of England and Europe can never 
again depend on the resources of their immediate vicin- 
ity, but on the productions of the whole earth. Practi- 
cal economy is becoming, like the science itself, univer- 
sal and human. The competition of the world controls 
the markets of all civilized countries. 

§ 47. There are various causes by which, in par- 
ticular cases, the cost of production may be increased. 
They may however be summed up under the single 
statement that it may become necessary to derive sup- 
plies for human want from sources involving a greater 
outlay of labor and capital. For example, a mineral 
may be needed, the supply of which comes only from 
mines the working of which is constantly becoming 
more costly ; or if new mines are discovered, they may 
be in reginos so remote from the place of consumption, 
or so difficult of access, that their products cannot be 
cheaper than the product of the mines before known. 
The case may occur that no new mines of gold and 
silver may be discovered for a long time to come, and 
that within a generation or two, the rich surface min- 
ing of California, Australia and the Rocky Mountains, 
may be quite exhausted, so that the future supply of 
gold and silver must be derived from deep mines, re- 
quiring an immensely greater expenditure of labor and 
capital. In this way it may happen that the supply of 
gold and silver, the cost of which has been greatly 
diminished by the discoveries of the last thirty years, 
may for generations to come be obtained at constantly 
increasing cost. The point of lowest depression in the 
value of gold and silver may soon be reached, from 
which point onwards for an indefinite future, constantly 



FLUCTUATIONS OF VALUE. 63 

increasing cost may cause steadily advancing value of 
the precious metals. The effect of such changes in the 
value of gold and silver will be discussed in connec- 
tion with the subject of money. 

§ 48. It remains to point out the influence of a 
variation of the 7-atio of sitpply and demand on prices. In 
speaking of the ratio of supply and demand we of course 
mean, not that demand or desire can sustain a ratio to 
that which supplies it, but the ratio of the quantity 
ready to be exchanged to the quantity requisite in order 
that all may be supplied who are able and willing to 
offer the equivalent. 

First, The ratio of supply to demand may be in- 
creased either temporarily or permanently. If the 
commodity in question is one of permanent utility and, 
desirableness, the effect will be only temporary. As 
the supply exceeds the demand sellers will underbid 
each other and prices will fall. The effect of this will 
be two-fold. Fall in price on the one hand will in- 
crease demand. Those who would not purchase at the 
higher price, will be ready to purchase at the lower. 
This will tend to equalize supply and demand. On 
the other hand if supply is still in excess the motive to 
produce is diminished. Production will be slackened. 
Capital and labor will be withdrawn from the trade, 
until supply and demand are equalized. 

If the demand is dependent, not on any permaiient 
utility or desirableness^ but on some caprice or fashion, 
supply and demand will become more and more unequal, 
the demand will rapidly decline until the production of 
the supply entirely ceases, and the commodity is re- 
moved from the market altogether. 

Second, The ratio of supply to demand may also be 
diminished either tempora^Hly or permanently. If the 
fluctuation is only temporary, it will be re-adjusted by 



64 ECONOMICS. 

the law of competition acting precisely in the manner 
just described. But if it results from permanent 
causes, three distinct cases arise, each of which must 
be considered by itself. One thing is common to all 
three of the cases. The demand constantly tends to 
exceed the supply. The first case is that in which the 
supply can be increased without increasing the cost of 
production. This is the case of most manufactured 
articles. All that is necessary to an indefinite increase 
of the supply of these is to employ for the purpose a 
greater amount of labor and capital. Under the con- 
ditions in which the demand for manufactured articles 
is steadily increasing, both labor and capital are increas- 
ing also, and seeking new modes of employment. There 
is therefore in the economic system, a provision for the 
increase of the supply of such commodities to respond 
to any demand which may ever arise, without increase 
of cost. It is true that such an increase may raise the 
price of materials, but the cost of the material in most 
cases bears so small a ratio to the whole cost of the 
product, that a considerable increase of the cost of the 
material would scarcely affect the cost of the product 
appreciably. On the other hand a constantly growing 
demand will facilitate production upon a larger scale, 
and therefore with increasing economical advantage. 
It will also stimulate invention to devise better methods 
of assisting and applying labor, better machinery and 
more perfect economy in every department ; and these 
advantages will probably much more than compensate 
for any increase in the cost of raw material. Nature's 
provision is therefore perfect for furnishing a supply 
of the comforts, conveniences and beauties of life to 
any increase of population. 

To this view of the case there might seem to be one 
objection. It may seem probable that in so great an in- 



FLUCTUATIONS OF VALUE. 65 

crease of manufacturing industry, the supply of some 
article of essential importance to the process may fail, or 
become so expensive as greatly to increase the cost of 
the product. For example should the English coal fields 
approach exhaustion, the cost of coal might be so much 
advanced as seriously to increase the price" of manufac- 
tured articles. But it must be borne in mind, that our 
science is not English but universal. The effect of such 
an occurrence would be only to transfer the manufactures 
affected by the change to other localities where fuel is 
cheap and abundant. Whenever in any country the con- 
ditions of cheap manufacturing no longer exist, its man- 
ufactures will no longer be able to compete with those 
of other countries in the markets of the world, and it will 
soon be obliged to deliver over the trade to others who 
possess the requisite conditions. 

§ 49, The second case to be cojisidered is that of products 
the supply of which caii not be increased ^ except at an in- 
creased cost of p7'oductioji. The reason is that some of the 
conditions of production, perhaps all of them, must be 
derived from sources of supply requiring a greater amount 
of capital and labor to be employed in working them. 
This case therefore is identical with that examined in 
§ 47. Mr. Fawcett claims that the principle stated in 
that section holds good in respect to all agricultural and 
mmeral products. With certain modifications in his 
modes of statement, which will be pointed out when we 
come to speak of Ricardo's theory of rent, this might be 
true of a single country like England, already far ad- 
vanced towards maturity of her civilization, on the sup- 
position that she could receive no supplies from the rest 
of the world. But considering England simply as a small 
part of the world, and her people only as a fraction of 
the human race, the view has no approximation to cor- 
rectness. The agricultural productions of the United 



66 ECONOMICS. 

States have been doubled within a few years, without 
any appreciable increase, we suspect indeed with an ab- 
solute diminution, of the cost of production. They are 
apparently capable of being increased by a much greater 
multiplier within a few years to come, and still without 
increased cost of production. The quantity of agricul- 
tural products offered in the markets of England may be 
increased in the same manner, to an extent to which no 
one is at present able to assign any limit. Areas of fer- 
tile land in comparison with which the whole surface of 
Britain is simply insignificant, exist both in this and in 
other countries, which are now quite uncultivated, and 
which will only remain so till they can be brought into 
cultivation without depressing the price of agricultural 
products below the rates which prevail at present. Any 
nation which like England opens its ports to corn pro- 
duced in whatever nation, need have no apprehension 
of any increased costliness of such agricultural products 
as can be brought to her from beyond the seas. Her 
increasing population may find it more advantageous to 
trace back the lines along which food finds its way to 
her shores, and make their homes amid the fields where 
it is produced, than to remain crowded together in her 
island homestead, dear as it justly is to all her children. 
But either at home, or in the lands from which her sup- 
ply of bread comes, her people have little reason to ap- 
prehend scarcity of food, or much enhancement of its 
price. 

§ 50. T/ie third case is that of desirable products 
which from the nature of the case are limited In amount^ 
and can In no manner be increased. To this class be- 
long paintings and other valuable productions of mas- 
ters who are no longer living. The price of such works 
is limited only by the desire to possess them., and ability 
to purchase them. As long as the love of high art 



FLUCTUATIONS OF VALUE. 67 

continues to increase, and the works of any master con- 
tinue to rise, or do not decline in the relative estima- 
tion in which they are held; and the wealth of the 
community, or of the highly civilized nations of the 
world continues to increase, the works of such a mas- 
ter will be likely to rise in price beyond any assignable 
limit. The love of the beautiful in human nature is 
sufficiently strong to insure a high valuation of the 
works of genius. 

The same considerations are applicable to all com- 
modities and all exchangeable values, the supply of 
which is limited and incapable of being increased. To 
this class belongs the land on which a great city is built, 
embracing a considerable area around it. It is needed 
for purposes of the greatest importance, and no other 
land can be substituted for it. As the population and 
wealth of the city increase, its desirableness increases 
also, and men of wealth in increasing numbers, com- 
pete . with each other for its possession, and it is diffi- 
cult to set any limit to its increasing value, so long as 
the growth of the city continues. The constantly 
advancing price of land in all countries of rapidly grow- 
ing wealth and population participates more or less of 
the same character. It performs a function in the 
economic system which nothing else can perform ; the 
importance of that function is growing with every suc- 
cessive generation, and no outlay of labor or capital 
can render any other land capable of performing that 
function. Prices must therefore be steadily advanced 
till the increase of wealth and population is by some 
cause arrested. On the supposition of the simultane- 
ous and persistent application of the forces of civiliza- 
tion to our whole planet, the whole surface of the earth 
must ultimately be subjected to this law. Land must 
every where advance in price under the influence of 



68 ECONOMICS. 

increasing wealth and population till its entire produc- 
tive power has been brought into use, and the ultimate 
limit of the possible increase of the human race attained. 
The time however at which such a result would be 
reached is so remote in the distant future, that the ap- 
prehension of it can make no modification of our pre- 
sent economic system. 



CHAPTER III. 

Money. 



§ 51. In no stage of the development of the science 
of Economics, can we ever be ifar removed from some 
great law of human nature. This holds of exchange as 
of every other branch of the subject. Brutes use no 
tools ^ man does nothing without tools. No brute is capa- 
ble of such a comparison of the desirableness of two 
things, as to qualify him voluntarily to accept of one of 
them as an equivalent for the other. Man's life is not 
only filled up with such exchanges, but, true to his 
rational nature, he has invented and used through the 
ages a tool by which such exchanges are facilitated and 
assisted. That tool is money. By means of the tools 
which we employ in the production of material wealth, 
we avail ourselves of some natural force, to assist our 
labor, as by the water wheel we employ for this purpose 
the momentum of falling water. By means of the tool 
of exchange, we make use of the desire of all men for 
certain rare, brilliant and beautiful objects, to facilitate 
the exchange of all other objects of desire which have 
value. 

§ 52. This tool is not however^ like the steam engine 



MONEY. 69 

or the electric telegraphy the invention of any single mind. 
It must have come into use gradually through the like 
experience of many persons, and been brought to its 
present perfection in the progress of many ages. All 
exchanges must have originally been exchanges in 
kind, — mere barter. Such exchanges always involve 
great inconvenience. He who has anything to exchange 
has great difficulty in finding some one who desires 
what he has to part with, and will give him for it what 
he wants. The exchange is therefore long delayed, and 
during this delay that which he wishes to exchange 
yields no profit, and much time is wasted in trying to 
make the exchange, which would otherwise have been 
employed in production. If what he has to exchange 
is of considerable value, as a horse, or a yoke of oxen, 
it is very difficult to effect such a division of it as to 
procure many small articles which he needs. In order 
to accomplish it, he is forced to make many exchanges 
instead of one. He at length discovers, in the course 
of his experience, that there is some one species of 
wealth which nearly every one desires, and at all times 
and in any quantity large or small. It immediately 
occurs to a sagacious man, that by exchanging what he 
has to spare for what he finds almost every one is in 
want of, he can with that object of general desire pro- 
cure without difficulty whatever he wants. He adopts 
that method of exchange, and finds great advantage in 
it. Other men easily make the same discovery, and 
resort to the same method of exchange. This renders 
the object of general desire still more desirable. Every 
one will be eager to get it, because he can easily ex- 
change it for anything which he happens to want. 
Thus without any one's invention, without any formal 
agreement, this object of general desire has become an 
accepted medium of exchange, — money. It may be any 



70 ECONOMICS. 

thing which happens to be regarded as universally de- 
sirable, in the particular community that uses it. If 
that community is so isolated that it has no exchanges 
with the rest of the world, it will be a satisfactory 
money, as long as it continues to be an object of uni- 
versal desire. 

§ 53. It can only however perform its function sat- 
isfactorily, so long as that community co?itinues to be a 
woi'ld by itself^ unless it is also regarded . as universally de- 
sirable by the rest of the world, as well as by the people of 
that particular community. It would not in the least 
facilitate outside exchanges. If for example some iso- 
lated people had so great a fancy for certain rare sea 
shells found on their coast, either as articles of ornament, 
or because they believed them to be a peculiarly accept- 
able offering to make to their gods, that everyone always 
desired to procure them, and was willing to give in ex- 
change for them whatever he desired to part with, those 
shells would do well enough for money, while they had 
no intercourse with any other people ; but they would 
procure nothing in exchange from any portion of the 
world where no such fancy prevailed. They could not 
even be money to that people themselves, unless, for 
some such reason as we have supposed, they were ob- 
jects of universal desire. No agreement, no enactment 
even, can ever fit any substance to become a universal 
medium of exchange, unless it is an object of desire 
wherever in all the world exchanges are to be carried 
on, so that whoever desires to procure anything from us 
may know what he must offer in exchange for it, and that 
whatever we may wish to procure from abroad we may 
know an equivalent by which we may be sure to obtain it. 
/ Definition, Money is some product of labor itdiich in 
/every region of the earth to which exchanges extend^ is de~ 
/ sired by all men, in all quantities^ and at all times. 



MONEY. 71 

Perhaps it may be thought that this definition is too 
comprehensive. There may be — there are some, savage 
tribes with whom occasional visitors from the civilized 
world may make some trifling exchanges, who know 
nothing of the value of the money which we use. But 
no people can gain admittance into the economic brother- 
hood without some degree of civilization. The world of 
our science is everywhere sufficiently civilized to carry 
on something like regular trade. In so far as any por- 
tion of the human race is in the savage state, it can have 
no place in social science. 

In connection with this definition it is proper to refer 
again to the logical division of capital which has already 
been given. Fixed capital was sub-divided into three 
species — the Real, the Mechanical and the Mercantile. 
Money is the mercantile fixed capital^ the labor-saving ma- 
chine of exchange. Ft just as truly assists the labor which 
is employed in exchange, as machinery assists the labor 
of the manufacturer. The negotiation of exchanges is 
just as truly labor as the spinning of cotton, and just as 
truly needs to be assisted by invention. Professor Perry 
says all labor consists in " moving things." This is quite 
too narrow a view of labor. A great deal of labor is 
performed without moving things at all. This is true of 
much of the labor of exchange. 

§ 54, In the two metals gold and silver we have sub- 
stances which possess to a degree quite wonderful the 
essential quality of money — universal desirableness. 
They sustain such a relation to human taste and use, 
that they have been universally desired all along in the 
world's history, from the earliest antiquity of which we 
have any authentic record. Nor is there any reason to 
suppose that in the future, however distant, they are to 
be supplanted from that place in human regard which 
they have always occupied. The taste of all men for the 



72 ECONOMICS. 

brilliant, the beautiful and the permanent has made gold 
and silver to be money for many ages and over a large 
portion of the world. They are the ornaments of kings, 
of their palaces, their persons, their crowns and their 
thrones, and their carriages of state, of the temples and 
of the altars of divinity, of the wealthy and the great, 
and of female beauty and loveliness. It is this relation 
to human taste, that has so long made them the circu- 
lating medium of the civilized world, and will probably 
fit them to perform that function in the distant future. 

They have also other qualities which combine with 
their brilliancy and beauty to increase their fitness for 
that function. Their scarcity and the great amount of 
human labor necessary to procure them and introduce them 
into the markets of the world, are such as to render a 
small quantity of either of them of great value. Nothing, 
it has been shown, will continue to be produced, unless 
its value for long periods equals its cost. As the cost of 
these metals is high, their value must be high also. A 
small amount of gold and silver will procure by exchange 
a large amount of other objects of desire. One can 
therefore, by converting what he has for exchange into 
gold and silver, compress great purchasing power into 
very small bulk and weight. This very greatly increases 
the usefulness of these substances as money. 

It is however possible that a substance may be of too 
high value to be used in exchanging articles whose price 
is small. This is true of gold. When so minutely di- 
vided as to represent very small values, the pieces be- 
come so small as to be easih'- lost, and incapable of being 
counted or handled with convenience. It is therefore a 
great advantage that we have another metal fit in other 
respects to be used for money, which is much less valu- 
able, and therefore much better suited to small exchanges. 
Gold coins of less value than one dollar would be very 



MONEY. 73 

undesirable, and are never made. The sub-divisions of 
the dollar are always coined from silver. Even silver is 
too costly for the minutest divisions which are found con- 
venient. For these copper is therefore employed in its 
stead. 

Capability of minute division without loss of value is 
aiiother great advantage which gold and silver possess, 
without which they would be ill-adapted to some of the 
uses of money. Diamonds, like gold, have great value 
in very small compass, but are incapable of division 
without loss of value. A large diamond is greatly more 
valuable than an equal weight of small ones. They 
are therefore unfit to be divided into pieces sustaining 
definite relations of value to each other, nor can they 
receive any impress by which their value can be indi- 
cated to the eye. 

§ 55. Another quality is exceedingly important in 
that which is to perform the functions of money. Its 
cost, and therefore its value must be as invariable as pos- 
sible. This introduces to our consideration another func- 
tion of money not hitherto mentioned, which is of the 
greatest importance. We have already shown that any 
substance universally desired originally becomes money 
only because the convenience of exchange requires it. 
Bat any substance by becoming the universal medium of 
exchange, also becomes of necessity the universal measure 
of value. If there were no medium of exchange, there 
could be no generally recognized standard by which 
values could be estimated. No general estimate could 
be formed of the wealth of a man, or of a community. 
You could only give a catalogue of existing possessions, 
for example, so many horses, so many oxen, so many 
sheep and so on. There could be no accurate compari- 
son of the value of the things exchanged for each other, 
and only a very rude approximation to true equivalency. 
4 



74 ECONOMICS. 

But as soon as there is any accepted medium of ex- 
change, it of necessity becomes also a standard of vahie. 
All values are estimated by comparison with the circulat- 
ing medium, and can therefore be directly compared with 
each other. A horse is not worth so many oxen, or so 
many sheep, but so many dollars. It thus becomes easy 
to estimate the entire amount of any one's wealth or of 
the wealth of a community or a nation. 

This function of money becomes very important in 
the case of time contracts. If one contracts to pay one 
hundred bushels of wheat in twelve months the next 
harvest may be a very bad one, and he may therefore be 
under the necessity of paying one hundred bushels when 
a bushel is worth twice as much as when the contract 
was made. This makes the transaction inequitable, and 
such a liability will make men averse to all time con- 
tracts, and throw a grave impediment in the way of 
the working of the natural law of exchange. The sub- 
ject of credit will be considered in another place : it is 
sufficient to say of it in this place, that the use of credit 
in exchanges is an outgrowth of our social nature, and 
if our instrument of exchange is not suited to it, great 
inconvenience must follow. A medium of exchange will 
always be a standard of value, and if it is liable to great 
fluctuations of its own value, it will be a barrier nearly 
insuperable to all negotiations of exchanges which in- 
volve the element of time. 

The precious metals are eininenfly Jit to perform this 
function of mo7iey. Of course their value is not strictly 
invariable. The discovery of new and more productive 
mines than were before known sometimes sensibly di- 
minishes the cost of the precious metals, and therefore 
diminishes their value as compared with all other objects 
of desire. But history clearly shows that this variation 
has been less than in the case of any other product of 



MONEY. 



75 



human labor. There have been, so far as history in- 
forms us, but two instances in many centuries, in which 
there has been a change in the value of these metals 
which was appreciable, without extending the compari- 
son over long periods of time. Those two instances 
were of course the discovery of America, and the open- 
ing of the mineral resources of California, Australia and 
the Rocky Mountains. The effect of this last great 
monetary revolution is not even now fully developed. 
But nothing has yet occurred to weaken the assertion, 
that the value of the precious metals is less fluctuating 
than the value of any other product of human labor. 
Just so far as that proposition remains true^ they are of 
course preeminently fitted to be the standard of value 
for the commercial world. 

§ 56. We have here another illustration of the cosmo- 
politan character of our science^ and of the importance of 
always keeping it in mind. It is exceedingly desirable 
that whatever we use as the standard of value and the 
medium of exchange, in one country, should be so used 
in all other countries to the extreme limits of the eco- 
nomic world. If the same substance is used for these 
purposes everywhere, that circumstance alone has a very 
important influence in preventing fluctuation of value. 
If our country only had used the precious metals for 
money, and all the rest of the world had used a different 
medium of exchange, the gold which has been obtained 
from our recently discovered mines would have mostly 
remained at home. Its effect on the standard of value 
would have then depended on the ratio existing between 
it and the amount of gold which would have been in cir- 
culation among us, had these mines never been discov- 
ered. The effect must have been to produce a depres- 
sion in the value of gold which must have greatly dis- 
turbed the prices of all other commodities. But in the 



76 ECONOMICS. 

present order of things, gold being the money, not of a 
single country only, but of the world, the effect produced 
on the standard of value is regulated by the ratio of the 
recently produced gold to the whole amount previously 
existing in the world. Great therefore as the amount 
of recently produced gold is, the fluctuation of value oc- 
casioned by it, is comparatively small. A single heavy 
rain will raise the level of a mill-pond or of a small in- 
land lake, so as to produce disaster, but it will have no 
appreciable effect on the ocean level. Gold and silver, 
considered as a standard of value, are an ocean flowing 
around the whole economic world, and very large addi- 
tions at two or three points are immediately distributed 
to every part, like water which is poured into the ocean 
from a single river, can have no appreciable effect 
on its level, 

§ 57. It is hardly possible to avoid being impressed 
with the thought of a designing miftd, as we contemplate 
the relation of these two metals to the economy of the 
human family. Among all the materials of which the 
solid earth is composed two substances are found, each 
of which is so related to human taste as to render it an 
object of universal desire among all civilized nations, 
and thus fit to be everywhere without concert or any 
form of agreement, a medium of exchange and a standard 
of value. Both these substances exist in quantities so 
small and require so much labor to bring them into the 
markets of the world, as to insure their great value, and 
in a great degree to protect them from liability to fluctu- 
ation. They stand also in such relations of value to 
each other, as to fit one of them for large exchanges and 
the other for small. They are so easily transported, that 
by means of them the largest values may be carried to 
any requisite distance almost without expense ; and thus 
a deficiency of them in any one part of the world may be 



MONEY. 77 

very quickly supplied from parts where they are in ex- 
cess. They are thus fitted and seem intended to unite 
the whole human family into one great economic world, 
around which they circulate as an ocean of liquid value, 
whose sea level is almost as invariable as that of the 
ocean of waters, and whose fluctuations scarcely exceed 
those caused by oceanic tides. 

This comparative exemption from fluctuation is very 
greatly increased by the facilities of communication which 
recent invention has provided. Taken in connection 
with the small bulk of the precious metals in proportion 
to their value, these modern inventions give to the money 
of the world almost the fluidity of water itself If wheat 
or iron or any other heavy or bulky substance were the 
medium of exchange, nothing of the kind could happen. 
All men do indeed need and desire wheat. But its bulk 
and weight are such, that to transport it from the point of 
abundance to the point of deficiency would soon consume 
half its value, or even in some cases its whole value. If 
therefore it were scarce in one region of the earth it would 
there rise in value without the possibility of supplying 
the deficiency, and bringing down the price to the com- 
mon standard, by transporting it from regions of abund- 
ance. In that case there could be no ocean of value of 
a uniform level. One may, we think, in this view of 
things easily become satisfied that all theories of money 
must be fallacious and deceptive, which leave out of the 
account this oceanic character of the world's standard 
of value. Such theories cannot be expressions of the 
natural laws of exchangee. 



78 ECONOMICS. 



CHAPTER IV. 



The Relation of the Government to the Medium of 
Exchange. 

§ 58. In the present condition of the public mind, the 
subject indicated by the heading of this chapter is one 
of great dehcacy, and yet of great importance. It is 
therefore necessary that it should be discussed with can- 
dor and thoroughness. 

The fact that each piece of money as it is ordinarily 
used hears a government stamp, most commonly a stamp 
of the government under which it chiefly circulates, has 
been the occasion of much confusion of thought, and 
many erroneous conceptions of the subject. We hear in 
these days utterance given to many such crude notions, 
from men of respectability and intelligence, and even 
from some who aspire to be the rulers and legislators of 
the nation ; as for example, that money is the creature 
of the government, that it circulates as money because 
the government has made it money by enactment, and 
that the government can make anything to be money 
which it chooses. At the present time our country is the 
hotbed of false and chimerical ideas on this whole sub- 
ject. The reason why it is so, is found in the fact, that 
our whole history since the American Revolution has 
been a series of unsuccessful experiments on the cur- 
rency, and the fact that some fifteen years ago an act of 
Congress was passed in direct violation of the first prin- 
ciples on which the monetary system of the world is 
founded, and that that law remains still in force. Our 
history in relation to this subject has certainly been un- 
fortunate, and in that better time coming when the true 
principles of the subject shall be understood and reduced 



RELATION OF GOVERNMENT TO MEDIUM. 79 

to practice^ will be reviewed with wonder and sorrow. 
The whole financial system of the nation is unsettled 
and in confusion, and men's minds are filled with 
strangely wild and chimerical theories. Of the finan- 
cial arrangements which originated during the war of the 
rebellion, under the pressure of military necessity, we 
shall speak in another place. But the nature of that 
power which governments exercise over money must be 
explained here. We have already shown that money 
originates, and the substance or substances to be used 
for money are selected in accordance with natural laws, 
without any intervention of the government whatever. 
Coinage is a mere arrangement for the common con- 
venience. To determine the precise quantity of gold or 
silver in any given mass is difficult and troublesome, and 
considering the ordinary crude condition in which these 
metals are for the most part found, more or less alloyed 
with the baser metals, it would be in the ordinary trans- 
actions of business, impossible. The governments of 
the civilized world, in order to remove this inconvenience, 
undertake to reduce the precious metals to a recognized 
standard of purity, to divide them into pieces bearing 
such relations to one another as convenience is found to 
require, and to place on each piece a stamp which shall 
certify, on the faith of the government, the quantity of 
the precious metal contained in it. Coinage is in prin- 
ciple precisely like the arrangements of the government 
for furnishing invariable standards of length, weight and 
capacity. All these provisions are alike matters of mere 
convenience, and give the government no right of control 
or dictation in the matter, beyond what the common con- 
venience requires. If one has had the accuracy of his 
half bushel certified, by having a government stamp put 
on it, that does not prove that the government owns the 
half bushel, instead of the nominal owner of it, but onlv 



8o ECONOMICS. 

that the owner has made it more trustworthy for his own 
use by the government certificate. The coining of money 
has the same significancy — no more — no less. 

That this is a true account of the matter, is very ap- 
parent. During a considerable portion of our history as 
a nation, the specie in circulation was of Spanish and 
not of our own coinage. It consisted of the Spanish 
dollar and its half, quarter, eighth and sixteenth, and 
bore the image, not of liberty, but of the kings of Spain. 
The people had confidence in the soundness and honesty 
of that coinage, and were willing to accept it, instead of 
putting our government to the expense of re-coining it. 
We happened to have it, because at that time we pro- 
duced little either of gold or silver, and received our 
supplies of them from Mexican and South American 
mines, then under the dominion of Spain. 

If our government were to attempt to manufacture 
money out of baser metal, such money would be just 
as certainly and indignantly rejected by the creditor, if 
offered in payment of his debt, as it would be if it came 
from any irresponsible counterfeiter. Is it asked then — 
has not the government a right to enact what shall be 
legal tender? and may it not make one thing legal tender 
as well as another ? 

§ 59. The right of the government to declare what shall 
he legal tender iii the payment of debts sustams no relation 
whatever to the nature and functions of 77ioney. It has 
already been shown, that it is a necessity of all men, that 
the civil government under which they live should pro- 
tect them in their property rights. In the performance 
of this duty, the government must necessarily undertake 
to compel men to pay their fairly contracted debts. In 
order to do this, it must prescribe some plain and equit- 
able rule, by which it shall be determined what consti- 
tutes payment. If for example A. has promised to pay 



RELATION OF GOVERNMENT TO MEDIUM. 8l 

B. a certain sum, and it is not specified in the obligation 
in what it is to be paid, B. may perhaps insist on receiv- 
ing it in some unusual product, which it is very inconven- 
ient for A. to furnish. The legal tender law, as it existed 
before the war, provided, that in all such cases the con- 
tract shall be interpreted to require payment in the or- 
dinary and recognized medium of exchange, gold and 
silver coin of the United States. The full extent of the 
power of the government to prescribe what shall be legal 
tender in the payment of debts, is its power to prescribe 
an equitable rule by which such contracts shall be inter- 
preted, according to the clearly presumable intention of 
the parties. Till the great financial revolution growing 
out of the late war, no one ever imagined that the right 
to prescribe a legal tender had any other significancy or 
extent than this. Whence then the notion that under 
this right there is included a power to compel the credi- 
tor, whenever the government shall so enact, to receive 
paper or tin dollars instead of gold in payment of all 
debts ? Such an idea is utterly groundless, and its pre- 
valence among a people every man of whom casts his 
vote for the rulers and legislators of the nation, is danger- 
ous in the extreme. 

§ 60. IVas then the Act of Congress making the United 
States Treasury Notes ^ known as Greenbacks^ legal tender 
for all debts, an act of injustice and tyramiy ? To a ques- 
tion so directly ethical in its nature as this, it is not our 
business to respond. But it does come within our sphere 
to show as clearly as possible what was the real effect of 
that law on our economic system. When that law was en- 
acted the value of a greenback dollar differed very little 
from that of the gold dollar, and it was probably hoped, 
and by many believed, that no great difference would 
afterwards arise. It was not therefore supposed that any 
great inconvenience was to be experienced from the 

4* 



82 ECONOMICS. 

working of the law, and little was therefore thought of 
the question of its justice or injustice. But within a few 
months after its passage it required two hundred and 
eighty-five dollars in greenbacks to buy one hundred in 
gold; that is a greenback dollar was worth only thirty- 
si^ cents in gold. Its power to procure by exchange all 
other objects of desire was depreciated in the same ratio. 
The practical working of the law was a reduction by Act 
of Congress of the value of all stated incomes in the 
ratio of one hundred dollars to thirty-six dollars.' A 
provision for the support of a widowed mother and her 
children was reduced from a competency of ten thousand 
dollars, with an income of one thousand dollars, to the 
pittance of thirty-six hundred dollars, with an income of 
three hundred and sixty dollars. On the other hand 
the debtor that owed one thousand dollars in gold, could 
pay it with one thousand dollars in greenbacks worth 
only three hundred and sixty dollars. 

What 77iotive^ it may be asked, had the government 
for enacting such a law ? This is a very pertinent ques- 
tion and shall be fairly answered. It certainly was not 
because any one supposed or pretended, that in the ordi- 
nary conditions of national existence, any government 
had a right to interfere in this manner with the relations 
of a debtor to his creditor. It was well-known to be a 
flagrant violation of the fundamental law of ownership, 
and of a sound economy. It was justified only in con- 
sideration of the stern necessities to which the war had 
reduced the nation. Money could not be raised either 
by taxation or regular loan with sufficient rapidity to 
meet the expenses of the war. The government was 
compelled by inevitable necessity to put off its creditors 
for the present with promises to pay, which at the time 
she was utterly unable to fulfill. It was evidently very 
important to employ every practicable means to prevent 



RELATION OF GOVERNMENT TO MEDIUM. 83 

the depreciation of these promises. It was therefore 
deemed advisable to make them receivable in payment 
of debts by all creditors as well as by the creditors of 
the government. By this measure it was hoped that their 
depreciation would be wholly prevented, or at least 
greatly retarded. Hence the legal tender clause in the 
law authorizing the issue of treasury notes. 

§ 61. It is not within our province to express an 
opinion on the very grave question, whether so high- 
handed and anomalous an act could be justified even in 
circumstances so urgent. It is enough for us to say, 
that our science knows nothing of any such control of the 
government over the world's medium of exchange. The 
admission of the principle would be utterly destructive 
of the property rights of the creditor in his relations to 
the debtor. What the creditor might hope to receive 
would depend, not on what the debtor had promised, but 
on what the arbitrary will of the government might enact. 
The law of ownership can recognize no loans either to 
individuals or governments, except by the voluntary con- 
sent of the lender. For example A. owed B. one thou- 
sand dollars payable in gold ; the government owed A. 
one thousand dollars expressed in a note of the Treasury 
of the United States. It required B. to accept its 
promise to pay one thousand dollars without interest, 
at that uncertain future period when it should be pre- 
pared to redeem its promise, as payment in full of A's 
debt of one thousand dollars in gold bearing interest. 
It was a requirement that B. should loan the government 
one thousand dollars in gold without interest, and wait 
till the government was prepared to pay the debt. It 
was a direct violation of the law of ownership. The 
government took the property of the owner without con- 
sent either granted or even asked. 

It seems to be a very popular idea in the discussions 



84 ECONOMICS. 

of the present, that the government ought indeed as 
soon as practicable to redeem greenbacks in gold when- 
ever presented, but that they should by no means be 
withdrawn from circulation. This is simply a proposi- 
tion to perpetuate without any pretense of necessity, this 
violation of a fundamental law which was originally 
resorted to under a plea of a necessity involving the 
very life of the nation. A government never can make 
its promises to pay a legal tender in the payment of 
private debts, without violating the fundamental law of 
all exchange, the free consent of both parties. It is of 
no avail to say that when the government redeems green- 
backs with specie they will be at par with gold and sil- 
ver. That may be true so long as the credit of the gov- 
ernment is unimpaired. But if national disaster again 
comes, and a severe strain is brought upon the credit of 
the government, greenbacks will again be depreciated, 
and the injustice which the creditor has suffered in former 
years will be again renewed. It is no function of govern- 
ment to intrude its promises upon the creditor in pay- 
ment of debts. It is not protecting the property rights 
of the citizen, but divesting him of his property without 
his consent. The practice of issuing treasury notes 
made legal tender may plead as a precedent the fact that 
the notes of the Bank of England are legal tender in the 
payment of debts. The example of England herself can- 
not justify the violation of a fundamental law of ex- 
change. That provision in the charter of the Bank of 
England may work no individual wrong in times of na- 
tional prosperity like the present, but calamity may yet 
again come upon England, and then the consequences 
of that law may be very disastrous. If at present it is 
harmless, it is also useless. Why not then abolish it, 
and let the future legislate for itself? 

§ 62. One thing would seem too evident to require 



RELATION OF GOVERNMENT TO MEDIUM. 85 

any confirmation by argument. It is that no obligafioft 
resting on oitr goverfnnent can be more sac7'ed., than the duty 
of repaying such a forced loa7i at the earliest possible day. 
The whole amount of greenbacks in circulation is a 
forced loan, and if our government means to earn the 
reputation of being the protector of the property of the 
citizen, instead of openly and flagrantly violating it, too 
much haste cannot be made in redeeming the promise 
of the government which is expressed on the face of every 
greenback. It is no wonder that strange theories of 
money and finance are rife, when the government, dur- 
ing the twelve years which have elapsed since the war 
was ended, has scarcely taken a step in the direction of 
fulfilling these promises ; while she is buying up her 
bonded debt at what it is worth in the market, by hun- 
dreds of millions, and that on the plea that it is desira- 
ble to diminish the amount of interest to be paid, and 
this forced loan is bearing no interest. An honest man 
is tempted to reply with some sharpness to such a plea, 
" it ought to be bearing interest. One would think it 
had been held without interest quite long enough." But 
with the morality of the question we are not now con- 
cerned. It is to be hoped that so strange an anomaly 
may soon be removed from our statute book, and that a 
precedent so full of danger may be eliminated from our 
legislation. 

§ d^i' It remains to point out the relation of this 
anomaly to the economic system. It affords a striking 
illustration of the phenomena which always attend a 
depreciated currency. By a depreciated currency is 
m.eant a national medium of exchange, which is in value 
below the standard of the rest of the world. The effect 
of the Legal Tender Act was, to give the people of the 
United States such a currency. All debts were payable 
in greenbacks. Of course as soon as greenbacks began 



S6 ECONOMICS. 

to be inferior in value to gold, all debts were paid in 
them. It being at the option of the debtor to pay in which 
ever he pleased, he always chose to pay in the less valu- 
able. Gold therefore ceased to circulate as money, and 
greenbacks became the sole medium of exchange and 
standard of value. They were always at par and gold 
at a premium, and all other species of property have ad- 
vanced in price in the same ratio. 

The natural consequences of a depreciated currency 
have been conspicuously exhibited. We have had most 
disastrous and seemingly capricious fluctuations of our 
standard of value. We do not purpose to give the sad 
history of the New York gold room for the last fifteen 
years. It is melancholy enough, and by no means cred- 
itable to our civilization. It is sufficient to say, that 
again and again fluctuations have occurred within a few 
days, sometimes even in a single day, of sufficient magni- 
tude to reduce thousands from princely wealth to bank- 
ruptcy, and to raise other thousands from comparative 
poverty to great opulence. It is important to make the 
causes of these fluctuations clearly apparent. It has 
already been shown, that the stability of the medium of 
exchange is greatly promoted by its being the same 
throughout the world. The currency of the world thus 
becomes an ocean, the level of which cannot be raised 
in any part without raising the whole simultaneously. 
While therefore the currency of any country is the same 
as that of all the rest of the world, sudden fluctuation is 
impossible. But our medium of exchange has no con- 
nection with that of the rest of the world, and is there- 
fore liable to rise and fall with any sudden and tempo- 
rary impulse originating among ourselves. Increased or 
diminished confidence in the government, the success of 
one political party or another, a bad harvest, or any one 



RELATION OF GOVERNMENT TO MEDIUM. 87 

of a multitude of other causes may any day occasion dis- 
astrous fluctuations. 

As eold and silver were no longer monev we had lit- 
tie use for them in any of the ordinary transactions of 
trade. The government had large payments of interest 
to make, and large collections of duties to be received, 
in gold. It had therefore constantly on hand a large 
amount of coin. But with that exception the precious 
metals were only kept on hand as merchandise, and the 
amount so kept was never very large. Merchants must 
however still pay duties and foreign balances in gold, 
and considerable dealings in gold were therefore inevi- 
table. In these circumstances it was not impossible for 
combinations of speculators to obtain control of nearly 
the whole amount of gold in the market, and dispose of it 
only on their own terms. Panics of the most fearful char- 
acter have been thus created, by which the whole nation 
was distressed, and thousands were ruined. 

§ 64. Another and most important cause of fluctua- 
tion remains to be explained. No principle is better 
established, than that whenever any object of desire is 
thrown upon the market in greater quantities than the 
needs of the people, or their ability to purchase requires, 
the fact will be indicated by a fall in its price^ and that 
reduction of price will go on as long as the excessive sup- 
ply continues to be increased. Such fluctuations of price 
are in a normal condition of things certain to be arrested 
by the fact that the labor and capital employed in pro- 
ducing that which is in excess cease to receive satisfac- 
tory remuneration, and are withdrawn to some invest- 
ment in which they are more needed. In a sound con- 
dition of exchanges, money is as much subject to this 
law as any other commodity. If for any cause it is ex- 
cessively abundant, it will no longer be profitable to 
bring it in, and it will be profitable to carry it away. The 



56 ECONOMICS. 

equilibrium therefore cannot be much disturbed. But 
with such a medium of exchange as that wliich our 
country now employs, the quantity may be indefinitely 
increased or diminished without involving any change in 
the employment of either labor or capital. Its increase 
or diminution depends only on the greater or less activity 
of a single printing press. The necessities or the caprices 
of the government may expand or contract its volume in- 
definitely. If it is in excess, it is money no where except 
within our national lines, and has therefore no outlet. 
Increasing the quantity only diminishes its value, and 
the system provides no remedy for the fluctuation. 

Various efforts have been made to discover whether 
we have an excess or a deficiency of currency. But such 
attempts are mere guess-work. We have no standard 
by which to judge. Accordingly the most widely op- 
posite opinions are expressed. All are alike worthless. 
In one way only can the question be decided. Bring 
our medium of exchange to a par with that of the rest 
of the world. Open the communications between it and 
the great monetary ocean, and the question will soon be 
decided. If our medium of exchange is redundant, it 
will flow outward and the level will sink. If it is defi- 
cient it will flow inward, and the level will rise. 

§ 65. Our statesmen and legislators have been much 
perplexed in trying to discover some means of rendering 
our currency elastic. By elasticity they of course mean a 
capability of spontaneously expanding and contracting 
its volume, according as exchanges are more or less 
active. It is even proposed that when money is excessive 
in the hands of the people, so that they are unable to 
find satisfactory modes of investing it, the government 
shall borrow it of them, and pay them interest for it, by 
issuing a convertible interest-bearing bond, which may 
at any time be given in exchange for greenbacks, and re- 



RELATION OF GOVERNMENT TO MEDIUM. 89 

deemed in greenbacks on the demand of the holder. If 
such a law is enacted the government should carry out 
the principle of it to its logical consequences. Consis- 
tency would require that when the people want work and 
cannot find it at satisfactory wages, the government 
should employ them at moderate wages, till they can find 
more lucrative employment elsewhere. A government 
that undertakes to find investment for all idle capital, 
should surely furnish occupation for all unemployed 
laborers also. 

Such a medium of exchange as ours can have no 
such quality of elasticity as is so anxiously sought for. 
Indeed the quality needed is not elasticity but fluidity, 
and that can be provided for only by a free and open 
communication with the currency of the world. 

§ 66. We are not of the number of those who think 
that the unsatisfactory condition of trade which has ex- 
isted in this country for several years, is wholly referable 
to any one cause. Many causes have probably conspired 
to produce it. But of these our unstable medium of ex- 
change is doubtless one of the chief. It has impaired men's 
confidence in the future and rendered them incapable of 
relying on any calculations respecting it. Excessive 
caution is the characteristic of the time, not greater in- 
deed than the uncertainties which surround us justify, 
but such as to render energy and enterprise in trade 
dangerous and to a great extent impossible. It seems 
to every intelligent thoughtful man, that he knows not 
what shall be on the morrow. Confidence in men and 
in the order of things around us is one of the most po- 
tent elements in the economic world. That element is 
at the present time in this country singularly impaired 
by an unstable currency, and by the lack of any satis- 
factory proof, that the political forces that govern us can 
be relied on to relieve us of this oppressive burden, by 



90 ECONOMICS. 

which all the movements of trade have been for years 
overweighted and retarded. 



CHAPTER V. 

Credit and Paper Mo7iey. 



§ 67. If we would construct a true economic system, 
we must leave out of the consideration none of the forces 
of human nature, which have any influence on it. One 
of these is credit. It claims and will have its place in the 
system, whatever our theories about it may be. It is 
natural for every man to repose more or less confidence 
in his fellows. If it were not, society would be impossi- 
ble, and solitude better than any human intercourse. 
Confidence always occupies a much larger place in the 
economic arrangements of the world than we are apt to 
suppose. Whenever any one has more capital than his 
own labor can employ, he is compelled to entrust it in 
some form to other hands ; and in every possible mode 
of employing it, he is forced to place more or less con- 
fidence in those by whose labor his surplus capital is 
made productive. If he hires laborers, they are not 
mere machines, but rational free agents, and no super- 
intendence can entirely secure him against liabilities to 
suffer from their unfaithfulness. Every laborer of what- 
ever grade has a character, which renders his services 
more or less desirable to an employer, and either has 
the benefit of credit, or suffers from the want of it. 
Credit is an element which cannot be eliminated from 
any arrangement by which one man labors with the capi- 
tal of another. All such transactions are more alike 
in principle than they seem to be. All use of capital 



CREDIT AND PAPER MONEY. 9I 

requires not only the exertion of muscular power, but of 
mind power to direct it to its end. When one hires 
laborers to employ his capital, he exercises the mind force 
himself, as far as possible, and leaves as little of it to the 
laborer as he can. The laborer therefore only receives 
pay for his muscular force and such small exercise of 
rationality as is necessary to the common laborer. The 
compensation for the mind force the employer reserves to 
himself. Sometimes a laborer is hired in such a manner 
as to allow him a large scope for the exercise of his mind 
force, and greatly to relieve the employer from superin- 
tendence, and is paid accordingly. The element of 
credit enters much more largely into such a contract 
than into the employment of a common laborer. In still 
another class of contracts the owner surrenders his capi- 
tal entirely, for a limited time, into the hands of another^ 
and is quite relieved from all superintendence of labor, 
only exacting from the person to whom he entrusts it a 
promise to return it or an equivalent agreed upon, at a 
fixed time, with a stipulated compensation for its use. 
It is common to apply the word credit only to the case 
in which the owner entrusts his capital entirely to an- 
other for a limited time. But it is plain that it is appli- 
cable in various degrees to all the other cases, and can 
never be absent from any transaction in which the labor 
of one man employs the capital of another. 

Credit is therefore one of the natural forces with 
which we must deal, and an economic system which 
should fail to find its true place would be radically de- 
fective. 

Definition, Credit is the confidence which any one in- 
spires by his integrity^ e?iergy and skill in affairs. 

I The methods by which it becomes influential in 

economic arrangements, are very various and for the 
most part quite spontaneous, and are so simple and 



n 



92 ECONOMICS. 

natural as to require no particular notice here. Some 
of them however are more artificial and complicated, 
and on account of the important relations which they 
sustain to the whole system of exchange, require a more 
particular explanation. 

§ 68. One of the most important of these is Banking. 
This in all its varieties and modifications involves the 
principle of credit. Banks perform four distinct func- 
tions, and are known as Banks of deposit, Banks of dis- 
count and exchange, Banks of loan and Banks of issue. 

In any community in which numerous exchanges are 
to be made, a Bank of deposit is a necessity. Any one 
who has many exchanges to make must necessarily keep 
on hand a considerable amount of the instrument by 
w^hich exchanges are effected. An accumulation of 
money at any one place requires expensive precautions 
to protect it against robbery. It is no more expensive 
to furnish these safeguards for a large sum than for a 
small one. If therefore an individual or a company pos- 
sessing in a high degree the confidence of the public 
provides such a place of safety, and offers to receive 
money for safe keeping on reasonable terms, many per- 
sons will gladly avail themselves of it. This can always 
be done without any expense to the depositors. For the 
managers of the bank, having a large amount in their 
hands deposited by many individuals, can always have 
the fullest assurance that it will not all, or even a very 
large proportion of it, be demanded at any one time. 
As taking one day with another, every man must receive 
as much as he pays out, it may be expected that each 
individual will deposit as much as he draws, and that 
while one man is drawing out, another will be deposit- 
ing. The managers of the bank may therefore at all 
times lend a considerable portion of their deposits, re- 
ceiving interest for the same. In this way they may 



CREDIT AND PAPER MONEY. 93 

easily and safely obtain remuneration for the expense and 
trouble of taking care of deposits^ without any expense 
to the depositor. It must however be borne in mind, 
that much wisdom and integrity are necessary in order 
that such loans may always be restrained within the 
limits of perfect safety. A rash, imprudent, unscrupu- 
lous banker may and often does expose his customers 
to great loss. The managers of a bank of deposit have 
need not only to possess but to deserve the highest 
credit. 

§ 69. A bank of deposit will almost of course and by 
necessity become an important auxiliary in exchanges. 
The counting and handling of money will by its assist- 
ance be almost entirely dispensed with. Any customer 
of the bank makes his payments for the most part by 
checks. Each check is charged to the account of the 
drawer, and credited to the account of the person in 
whose favor it is drawn. Thus the whole transaction, 
however large the check, is completed without the use of 
any money at all, merely by writing a few words in the 
books of the bank. The labor thus saved to a great 
trading community is immense. 

The same things may be done with very httle modi- 
fication of the process, between individuals depositing in 
different banks, and even residing at a great distance 
from each other. 

So extended and complete is the banking system of 
the civilized world, that payments between dealers in 
cities and countries however remote from each other are 
generally effected by checks and drafts, without any trans- 
fer of money, except the amount by which the purchases 
of one country or one city may exceed those of another. 
The extent to which the remotest portions of the earth 
are bound together by these invisible bonds of mutual 
credit, as invisible and yet as strong as gravitation, is 



94 ECONOMICS. 

highly honorable to human nature, and strikingly illus- 
trates the vastness of the area of modern civilization, 
and of the economic system that pervades it. 

The banks which perform this function are banks of 
exchange, and do not necessarily require any legislative 
sanction, or the conferring of any special privileges by 
act of the government. They need nothing in this re- 
gard except protection of every man's rights of property, 
and the impartial enforcement of the obligations of con- 
tracts according to their true intent and meaning. They 
are in no sense the creatures of legislation. 

§ 70. Baiiks of Deposit and Exchange very naturally 
become to a certain extent, Baftks of Loan. They lend 
so-. much of their deposit fund as is not needful to be 
kept on hand, to secure the entire safety of their deposi- 
tors. The loaning of money is a business as truly legiti- 
mate as any other. The subject of interest on money 
will be discussed in another place. It is enough to say 
of it here, that there are many persons who have money 
which they cannot employ in active business. It is 
greatly to their advantage and to the advantage of the 
whole community, that all capital should be actively em- 
ployed. It is better for its owners to live on the interest 
of their capital than to consume their principal, and it is 
a great advantage to persons having skill and power to 
labor, to obtain at a moderate rate of interest, the means 
of procuring tools and material, by which they can ren- 
der their labor and skill available. Banks often render 
a very valuable service by collecting together such idle 
capital, and lending it to those who need it, and are able 
and willing to make reasonable compensation for the use 
of it. For the performance of this function, no legislative 
grant of peculiar privileges is at all necessary. It may 
be performed by a single individual, or by several indi- 
viduals in an ordinary partnership. 



CREDIT AND PAPER MONEY. 95 

§ 71. There is another banking function which re- 
quires a rather more detailed examination. // is the issu- 
ing notes payable on demand to be circulated as a mediiwt 
0/ exc/iange, instea.d of gold and silver. Such bank notes 
are called Paper Money. They can be called so only by 
a rather violent figure of speech. No paper can be truly 
money. A bank note is nothing more than a piece of 
paper with a promise of some individual or corporation 
inscribed on it, to pay a given amount of money. To 
call such a promise money, is a use of language which 
strongly tends to that confusion of thought which is at 
present so prevalent in relation to the subject of money. 
Such a promise can only obtain general circulation in 
any community at its par value, on condition that the 
people have implicit faith that the promiser will on de- 
mand pay what he has promised. On this condition a 
bank note passes from hand to hand, not as money, but 
as affording to the holder an assurance that he can at 
any time obtain the money by demanding it. No one 
can deny that such promises to pay, when implicitly con- 
fided in by the people, have certain points of superiority 
for general circulation over gold and silver. If one has 
need to draw from a bank the sum of one thousand dol- 
lars, it is surely much easier and more convenient to take 
from the bank an assurance that the money will be paid 
on being demanded, and with that paper to obtain what- 
ever one needs to purchase, than to carry away from 
the bank a bag containing one thousand dollars in gold 
or silver. If those with whom one wishes to deal have 
implicit faith in the assurance which is expressed on 
that piece of paper, it will be more agreeable and con- 
venient to them to receive that paper in payment for 
what they sell than to be under the necessity of handling 
and caring for bags of gold or silver. It is in the nature 
of the case highly probable that for the sake of such a 



gO ECONOMICS. 

substantial convenience, men will always continue to use 
in the transactions of exchange some such expression of 
credit, to save themselves the inconvenience of handling 
and transporting the precious metals. 

During a large portion of our history the advantages 
of some such use of credit have been so highly prized 
and so much insisted on, that a large portion of the 
money in circulation has consisted in such promises to 
pay. Banks were incorporated in great numbers by the 
legislatures of the several states. They were for the 
most part limited corporations, the stockholders of which 
were liable for the debts of the company only to the 
amount of their stock, and had a right to issue their 
notes payable on demand for general circulation. In the 
year 1856 no less than one thousand four hundred such 
State banks were in existence in the United States. In 
New England alone were five hundred and seven, with 
an aggregate capital of one hundred and fourteen million 
six hundred and eleven thousand, seven hundred fifty- 
two dollars. The losses experienced by the failure of 
such banks to redeem their notes were enormous almost 
beyond belief, and, before the outbreak of the war in 
186 1, had wrought in the minds of thinking men gener- 
ally the conviction, that the system was radically unsound 
and untrustworthy. 

§ 72. Perhaps it is not difficult to point out zn what 
the unsoundness consists. Men's eagerness for substitut- 
ing a paper currency for real money was a delusion, a 
sort of madness. Credit is abundantly capable of ob- 
taining for itself all necessary expansion, without being 
stimulated by any artificial legislative helps and inven- 
tions. The active enterprise of an intelligent, industri- 
ous, commercial people will easily devise methods of 
supplying all the substantial conveniences of a paper cur- 
rency, without acts of incorporation or the endowment ol 



CREDIT AND PAPER MONEY. 97 

banking institutions with special privileges, to enable 
them to supply such a currency for the use of the peo- 
ple. The experience of a century, both in this country 
and in England, has demonstrated, that the demand 
notes of incorporated banks are a very untrustworthy 
medium of exchange. Credit should never be interfered 
with by legislation. If an individual or a private co part- 
nership can procure so much credit in the community 
that their notes payable on demand will circulate as a 
medium of exchange, we know no reason why the law 
should interfere between them and the public. Each 
man may be safely left to take care of himself But men 
who issue such notes should be held responsible for their 
redemption to the full extent of all their property. Men 
who are held to such a liability will be very cautious how 
they issue promises to pay on demand which they can- 
not perform. No advantages of a paper circulation can 
possibly compensate for the disasters which experience 
has shown to be inseparable from allowing banks of a 
limited responsil)ility to issue their notes as the circulat- 
ing medium of a community. We do not believe that ex- 
periment will ever be tried again in the United States. 
"A burnt child dreads the fire." 

§ 73. The war from 1861 to 1865 gave the United 
States a new monetary system which it is necessary to 
examine. That part of it which consists of Treasury 
Notes, called Greenbacks, we have already examined, in 
speaking of the legal tender law. The necessities of the 
government during that war were such as to compel 
it to resort to every practicable method of borrowing 
money. Out of these necessities grew our present novel 
system of national banks, which so far as circulation 
is concerned, has superseded the State banks in all por- 
tions of the country, except the Pacific Coast. The 
national banks are all organized under a law of the 



98 ECONOMICS. 

United States. A bank is constituted by depositing the 
amount of its capital stock in bonds of the United States 
with the Treasurer of the United States, as security for 
the redemption of the notes which it issues. It receives 
back ninety per cent of the same in officially certified 
notes, which the bank issues to its customers, and it can 
circulate no notes not so certified. The notes of these 
banks thus secured and certified are receivable for all 
taxes except impost duties, and for all dues to and from 
the United States except interest of the national debt. 
They are redeemable on demand in lawful money of the 
United States, including of course greenbacks, so long 
as they continue to be by law legal tender. As long 
therefore as the banks redeem their notes on demand 
as the law requires, their value will be precisely equal to 
that of greenbacks. If any bank fails to redeem its 
notes as the law requires, its affairs will be wound up by 
authority of the government, its notes will be redeemed 
out of the Treasury of the United States, which will be 
re-imbursed by the sale of the deposited bonds of the 
bank to the highest bidder. So long therefore as the 
United States keeps its depreciated legal tender notes 
in circulation, the national bank notes will be a deprecia- 
ted currency also. During the continuance of the war, 
these banks afforded the government great assistance in 
raising money, for many capitalists were eager to pur- 
chase the bonds of the United States for the purpose of 
using them in profitable banking. 

In all the ordinary conditions of our national life, the 
security for the rede7nption of national bank notes in legal 
tender of the United States is absolute. The credit of the 
notes of every national bank issued according to law 
must be exactly equal to that of the government, for the 
faith of the government is pledged for their redemption. 
If a bank fails the government will redeem its notes. If 



CREDIT AND PAPER MONEY. 99 

hereafter the government shall do the tardy justice of re- 
deeming its own long unfulfilled promises to pay, and 
shall remove from its statutes that anomalous law, which 
compels the people to receive the government's promises, 
hovv'ever long unfulfilled, in payment of all debts, there 
will then remain no legal tender of the United States but 
gold coin ; and the national banks will be forced to redeem 
their notes in gold, or go into liquidation, and in the latter 
alternative the United States Treasury will redeem their 
notes in gold. A more perfect security for the redemp- 
tion of national bank notes than would "exist if the United 
States fulfilled its own promises, would be inconceivable. 
This will be admitted, we think, by all candid men. 

§ 74. /ir then our 7iaiional ba7ikifig sysfeffi to be ac- 
cepted as a satisfactory a7id final solution of the question so 
long and so fiercely agitated, of banks and paper money 1 
We think not for the following reasons : 

First, The credit of the banks under this system 
must always suffer, when f-om any even temporary cause, 
the credit of the government suffers. Unfortunately we 
cannot assume that a severe strain has been brought 
upon our country's credit for the last time, and should 
such an event occur again, while we have our present 
national banking system, the immediate consequence 
must be a depreciation of our whole currency in general 
use, which must greatly intensify the effect of national 
calamity. A medium of exchange, to be sound, must not 
rest on mere opinion in respect to the solvency of any 
government, but on solid permanent desirableness^ as 
estimated by the whole civilized world. 

Second, Though our national banks afford a satis- 
factory security for the redemption of their notes, they 
afford no adequate security for the re-payment of deposits. 
Formerly, in times of financial difficulty, the untrustwor- 
thiness of our banks manifested itself in their inability to 



lOO ECONOMICS. 

redeem their notes. Under our present banking system, 
it has appeared in their inability to repay their deposi- 
tors on demand. It matters not in which of these two 
ways the disaster comes, one is just as fatal as the other. 
Our national banking system affords no adequate security 
against destructive failure in this last form. It may be 
said, and with some truth, that perfect security against 
such failure is impossible. But this being granted as 
true, should effectually warn us against building up any 
such great artificial system of credit on the basis of 
special legislative provisions. Credit is one of the great 
natural forces of the world's economic system. But it is 
for that very reason a delicate thi"g ^oi governments to 
meddle with. It is a dangerous experiment for a govern- 
ment to establish a vast net-work of banks to cover half 
a continent, to receive for safe keeping the spare funds 
of many millions of people, while the private property of 
those who are interested in founding and managing these 
institutions is not held responsible for the safe keeping 
of the funds which may be deposited with them. Let 
credit be free and unrestrained. Let any man who de- 
sires to receive the money of his fellow-citizens for safe 
keeping obtain as much of their confidence as he can 
on simple personal responsibility. Let all who choose 
commit their money to his charge. But let not the gov- 
ernment provide any means by which any portion of his 
property may be exempted from responsibility to redeem 
his pledges to those who have trusted him. Let govern- 
ment interfere in no way whatever with the natural and 
spontaneous development of credit. Let it confine itself 
to its own proper function of rigidly enforcing all con- 
tracts according to the true intent and meaning thereof. 
The financial disasters which occur under such a sys- 
tem, may fairly be presumed to be unavoidable by any 
human wisdom or invention. 



CREDIT AND PAPER MONEY. lOT 

Third, In the nature of the case this system can oiily 
last as lo7ig as ou?' iiatiojial debt remams unpaid. If the 
time ever again comes when, as in former years, we are 
a nation without a national debt, there will be no na- 
tional bonds in the market, which can be used as the 
basis of a national banking system. The banks now in 
existence must go into liquidation, because the founda- 
tion on which they are constructed will have ceased to 
exist. We shall then have no banks and no paper 
money, or we must construct a new monetary system on 
some other principle. 

§ 75, Perhaps the ultimate and normal condition of 
the economic world in relation to this matter of paper 
money, will be found to be, that credit will everywhere 
be left to its own spontaneous development, according 
to its own natural laws, with no artificial contrivances 
to stimulate or to check it. It may be asked, why not 
adopt the plan of a great national bank like that of Eng- 
land, and those of other nations ? That suggestion does 
not seem worthy of any special examination in this place. 
The efforts which we have made in that line have not 
resulted in such a way, as to encourage further experi- 
ments of the same sort. Past experience would suggest 
grave doubts, whether a great national bank like that of 
England can ever be amalgamated with our institutions 
and character. Why should we desire to experiment 
further in that direction ? It must be obvious even now 
to all well informed persons, that those vast lines of 
confidence and exchange which rank among the grand- 
est characteristics of modern civilization, are controlled 
by private bankers, who owe nothing to any legislative 
tinkering or favoritism. The natural development of 
credit over the economic world has produced private 
banking houses, that are fully adequate to be the fiscal 
agents of great nations, and even to negotiate the war- 



I02 ECONOMICS. 

loans of all Europe. Why then should it be doubted 
that credit, without being aided or interfered with by any 
of the governments of the world, is capable of furnishing 
to the individual merchants and travellers of all countries, 
all the substantial conveniences and advantages which 
have ever been supposed to be derived from banks and 
paper money? 



CHAPTER VI. 

The Functions of Credit. 

§ 76. From what has already been said it is obvious 
at a glance, that the influe7ice of credit on the working of 
the whole econo?nic 77tachine must be exceedingly great. It 
has been shown that without it no man could ever find 
use for any more capital than his own hands could em- 
ploy; for the moment he entrusted it to another hand to 
be used in production, the operation of credit would 
begin. All mutual dependence, all mutual helpfulness, 
all human society inevitably implies credit. The una- 
voidable necessity of such uses of credit none will deny. 

A little consideration will satisfy us, that the necessity 
of some of the more extended and seemingly optional 
forms of credit is scarcely less imperative. The first of 
these which requires to be particularly mentioned is its 
influence in quickening exchanges. The producer of 
any commodity, so soon as he has completed it, has need 
of the entire investment of labor and capital which he 
has placed in it, to be used again in further production. 
Perhaps his capital is small and is all invested in that 
one product. He must therefore either by sale procure 
it to be used again, or he must borrow the capital neces- 



THE FUNCTIONS OF CREDIT. IO3 

sary to procure more material, and the means of living 
while he employs himself on some other product, or he 
must cease to work, and his means of present support 
must fail. If he could dispose of the product on hand 
to some one of good credit on the promise of payment at 
the end of six months, he could use the credit of the pur- 
chaser in addition to his own, and thereby procure the 
capital necessary to the continued prosecution of his 
trade. The man who purchased on credit may by means 
of that very purchase also have been enabled to prosecute 
a successful trade, and before his debt falls due, have 
earned the means of redeeming his promise. By means 
of that credit transaction therefore all the advantages of 
an immediate sale were realized. Had not the pur- 
chaser procured what he needed on credit, two men 
would have been reduced to the necessity of being un- 
employed, through the tardiness of exchange. Credit 
quickened the exchange, and procured for themselves 
and the community the benefit of their labor. What oc- 
curred in this case is constantly happening in all indus- 
trious communities. Credit affords great and much 
needed facilities for bringing all products into use as soon 
as they are ready for the consumer. Without this quick- 
ening influence of credit on exchanges, all industry must 
move heavily and slowly. It is a natural provision for 
bringing the producer and consumer as near together as 
possible. 

§ 77. Another influence of credit is th^it if gh'es to the 
energetic and skillful man without capital almost his only 
chance of acquiring it. The world of trade is everywhere 
full of illustrations of the great advantage to be derived 
from the laborer owning the capital with which he works, 
and being therefore able to regard as his own all the 
benefits of his energy and skill. It is capable of work- 
ing wonders. But if the skillful man who has no capital 



I04 ECONOMICS. 

cannot obtain it on his credit, he must in most cases be 
a mere laborer on hire, till his best days of energy, in- 
vention and enterprise are past, and his best chances of 
a successful life gone. The capital which he uses only 
for the profit of another will produce much less valuable 
results than it would have done if he could have used 
it for his own profit. All society is thereby poorer. No 
man can calculate the loss to modern society, which 
would accrue from depriving it of all the productive 
power which credit in this way produces. Energy, inven- 
tion, enterprise would become almost useless words. The 
man that began life in poverty, must almost of necessity 
end as he began, and even the rich would be much less 
opulent than at present. The greatest fortunes are apt 
to be amassed by those who began in their youth with 
a judicious use of their credit. 

§ 78. Another function of credit is, greatly to dimm- 
ish the a7nount of money necessary to be used in the trans- 
actio7i of hitsiness. Perhaps the simplest illustration of 
this is the case of two individuals, who have frequent 
exchanges with each other. Neither pays any money. 
What each buys is charged in the books of the seller. 
Perhaps at the end of six months they adjust their ac- 
counts. It turns out that the purchases of each are very 
nearly equal. A small balance only remains to be paid 
in cash, and perhaps even that may be charged over to 
a new account. And yet perhaps the amount of traffic 
between them may have been large. In this way credit 
transacts a large amount of business wdthout any use of 
money whatever. And yet the existence of a recognized 
medium of exchange is just as important in these trans- 
actions, as though every purchase were made in money. 
It is by the fact that the value of every thing is estimated 
in a recognized medium of exchange, that these accounts 
can be kept with so much ease and accuracy. Money is 



THE FUNCTIONS OF CREDIT. 105 

just as important to us, when we do our exchanges with- 
out it, and the use of it in some cases enables us to sub- 
stitute credit for it in many other cases. 

In every case in which payments are made by checks 
or drafts, whether payable at sight or on time, credit is 
made a substitute for money, and by so much diminishes 
the amount of money needed to transact the exchanges 
of the community. This becomes quite obvious in the 
operations of a bank of deposit. If every man had kept 
his money in his own hands instead of depositing it with 
the bank, and paid by counting and handing over money, 
the whole amount of the deposits of the bank would have 
been no more than sufficient to effect the exchanges of 
the depositors. But when they deposit the same funds 
in the bank, and pay by checks, it is found that one 
third the amount will suffice, and the remaining two 
thirds can be placed at interest with entire safety. This 
fact demonstrates the great diminution of the money re- 
quired to be kept in circulation, which results from mak- 
ing payments in checks. 

The same tendency of credit to diminish the amount 
of money necessary to be used in the exchanges of a 
community is still more strikingly apparent in the use of 
hank notes as a medium of exchange. It is the received 
opinion that a bank whose specie on hand is equal to 
one half its notes in circulation is perfectly safe. If this 
is so, then the currency of any community might con- 
sist of one third real money, and two thirds paper money, 
and still be perfectly sound. But two dollars in every 
three of that currency would represent credit, and only 
one in three would be real money. Such a currency, 
could it be perfectly insured to remain such, would an- 
swer the purposes of exchange just as well as though 
it were entirely composed of gold, without any use of 
paper money. Credit would therefore diminish the 



I06 ECONOMICS. 

amount of real money necessary to negotiate the ex- 
changes of that community by two thirds, 

§ 79. This fact is the one truth which is to be found 
amid all the fallacies of paper money. No method has ever 
yet been devised by which banks can be empowered to 
issue such a currency, and yet be effectually restrained 
from exceeding in its issues a prescribed and definite 
limit. Men cannot safely place confidence in such banks. 
Sooner or later their issues, or their indebtedness in 
some form, will not only transcend all prescribed limits 
but all limits of prudence and safety. Disaster has fol- 
lowed so often and spread ruin so widely, that the prin- 
ciple must be given upas an utterly unsafe foundation 
for a medium of exchange. 

The truth however still remains, that by methods 
which are perfectly natural and safe, credit is to a vast 
extent made a substitute for money in conducting the 
exchanges of the world. This function of credit has 
certainly been greatly extended during the present cen- 
tury. Should the governments of the world at length 
become wise enough to leave the operation of credit 
without any interference, to the spontaneous develop- 
ment of its own laws, this function will yet be very 
greatly extended, and the efficiency both of capital and 
labor be much more aided by it, than hitherto. 

The consideration deserves to be mentioned that this 
power of credit to diminish the amount of money need- 
ful in a given state of exchanges, sustains a most impor- 
tant relation to our present great problem of a return to a 
sound currency. It may readily be admitted that if that 
problem were actually to substitute gold for paper in 
transacting all the exchanges of the countr}^, any speedy 
solution of it would be quite out of the question. Such 
is not the problem however. We have our national bank 
currency strictly limited by national authority so far as 



THE FUNCTIONS OF CREDIT. I07 

respects the ratio it sustains to the stock of the banks, 
and depending for its circulation, not on individual or 
corporate, but on national credit, and requiring only so 
much gold as will enable the banks to redeem their bills 
on presentation. In this state of things, with this ex- 
tensive use of our national credit as a basis in part of 
our medium of exchange, the amount of gold needful to 
be employed will probably be less in proportion to the 
amount of exchanges to be transacted, than in any other 
country of the world, and a return to specie payments 
must be comparatively easy. This is clearly indicated 
by the fact that at this writing both greenbacks and na- 
tional currency are reported at a discount of only about 
five per cent. 

§ 80. Another very important influence of credit lies 
in its power to control prices. Such a power it must neces- 
sarily possess. Price we have already seen varies with 
demand, and evidently demand depends largely on the 
use which is made of credit. If no exchanges are made 
on credit, transactions must be limited to those who have 
money in hand. But if credit is employed with freedom, 
all who have good credit may be purchasers. The de- 
mand therefore will be increased by precisely the amount 
purchased on credit, which could not have been pur- 
chased if no credit had been used. This function of 
credit is very variable, depending very greatly on men's 
hopes or fears. In times of prosperity hope preponder- 
ates and credit is very freely employed. Prices as a 
necessary consequence are buoyant, since all commodities 
are in demand. In times of adversity men's fears pre- 
ponderate, and the use of credit in exchanges is reduced 
to a minimum. As a necessary consequence demand 
diminishes and prices decline. 

This is the dangerous and critical element in credit. In 
circumstances favoring its largest development, it is capa- 



Io8 ECONOMICS. 

ble of so raising prices as for the time being to render 
even a sound currency almost useless as a standard of 
value, and when concurring with an unsound currency, 
of producing a sort of temporary madness in whole com- 
munities and even nations. About the year 1836 the 
public mind throughout our country became greatly ex- 
cited in prospect of the rapid settlement of that vast area 
of fertile land which lies in the Upper Mississippi valley. 
It was foreseen that in the life-time of men then living 
several great States were to be founded in what was then 
a wilderness, each equal in wealth and population to a 
great nation. Men's imaginations were greatly excited. 
The sites of the great cities which were soon to be, were 
selected, and laid out on a scale of such magnificence, 
as the imagination stimulated by the hope of gain could 
suggest, where not as yet a human dwelling had been 
erected. Lots were offered for sale on terms requiring 
little cash, and giving long credits for the remainder. 
Those small payments of cash, a highly inflated currency 
rendered it easy to make, and about the future few had 
any misgivings. Tens of thousands hastened to make 
their fortunes by purchasing western city lots. The ex- 
citement was nearly universal, demand increased rapidly, 
and prices were advanced, being limited only by men's 
imaginations. Men believed that they had made an 
independent fortune in a single day, when those fortunes 
existed only in the imagination. After a few months the 
real began to assert itself. Men must return from this 
aerial flight to the actual world. Some men found they 
must have money, and began to press their debtors for pay- 
ment. These urged others to pay who were equally un- 
able. All turned to the banks ; the banks were as unable as 
individuals. Their credit failed them, their paper money 
would no longer circulate, but returned upon them for 
redemption. They were quite unable to redeem them, 



THE FUNCTIONS OF CREDIT. lOQ 

and in a few months nearly all the banks in the country 
suspended specie payment, and universal disaster and 
almost bankruptcy followed. Western town plats were 
forgotten, or remembered only in sorrow, and the nation 
wiser but sadder turned again to sober industry. There 
is in this power which credit possesses, an element of 
danger, which is inherent in its very nature, of which the 
foregoing narrative presents only one out of innumerable 
examples. We do not believe this danger can ever be 
entirely eliminated from the use of credit. It will be as 
small as possible when legislators have learned that 
credit is too delicate a thing for them to interfere with by 
their clumsy tinkering. 

§ 8 1. Perhaps enough has already been said of that 
function of credit, by which it binds the whole civilized 
woidd together in one economic whole of mutual depend- 
ence and mutual helpfulness. It is a bond of universal 
attraction as invisible and impalpable as gravitation it- 
self, and yet as irresistible and indestructible. The 
power of that universal attraction to bind the whole 
human race into a common brotherhood and a common 
civilization, is rapidly increasing. Every new improve- 
ment in the means of locomotion and inter-communica- 
tion among the various populations of the world, extends 
the area of credit, and intensifies its attractive force. 
Theoretically the world is the field of our science, and 
the actual condition of the world is conforming more and 
more to the theory. 



no ECONOMICS. 

CHAPTER VII. 

Monopolies. 

§ 82. We confess to having felt some perplexity ahoict 
the heading to be employed for this chapter. The thought 
occurred to us to calj it " International Exchanges." But 
the thing which is naturally suggested by this phrase has 
no existence in fact. Nations are neither producers nor 
exchangers. Both these are individual and not national 
functions. Why then talk of international exchanges, 
when exchanges, wherever the exchangers may happen 
to live, are inter-individual and not international. In- 
dividual Englishmen may exchange with individual 
Frenchmen, but this is not England exchanging with 
France. Let us call things by their right names, if we 
would have an understanding of their real nature. 

What we wish to discuss in this chapter is, the eco- 
nomic character of certain restrictions on exchanges, 
which have been much practiced by the different nations 
of the world in its past histor}^ It seems to us that those 
restrictions are common in their nature, design and work- 
ing, and they are all fitly described by the word which 
stands at the head of this chapter — Monopolies. 

Definition, A Monopoly is such a control of the siip- 
1 Ph ^f ^^y desirable object^ as will enable its holder to de- 
[^ termine its price without appeal to competition. 

Some monopolies are conferred by the government, 
and are provided for by legal enactments. Others are 
secured by mere combinations of capital or labor or both. 
Some monopolies are entire, protecting their holders 
against all competition. Others are only partial, pro- 
curing for their holders exemption from competition only 
within certain limits. But protection to the holder 



MONOPOLIES. Ill 

against the competition to which other men are exposed 
is the common aim and result of them all. 

Monopolies have certainly occupied a very prominent 
place in the arrangements of modern Christendom, and 
the principle of monopoly may still be easily discerned 
in the laws and institutions of most countries, nor can it 
be justly claimed that our own country is entirely exempt 
from them. It is therefore necessary, before leaving the 
subject of exchange, carefully to examine their nature, 
the. grounds on which men seek to justify them, and their 
relations to the economic system. 

§ 83. Some monopolies are defensible on sound economic 
principles. It has already been shown, that when labor 
has been expended in giving value to any material thing, 
the laborer thereby acquires the ownership of the sub- 
stance upon which he has exerted his labor. If that 
substance was the property of a previous owner, in con- 
sequence of labor performed in producing it, the last 
laborer that works upon it must compensate the previous 
owner. But if it was without value when it came into 
his hand, he has gained the entire ownership of it, by 
the labor he has expended on it, and may exchange it 
in the form to which he has wrought it for any other 
value which he can obtain for it. Thus the possession 
of the material on which he has labored insures to him 
compensation for his labor according to its value. If a 
man of skill has made a table out of wood w^hich was of 
no value, he is sure of being paid for his work ; for no 
one can make a table of equal desirableness with less 
work, and tables are always in demand. 

But there are products of great value, the producers 
of which have no such natural assurance of obtaining the 
reward of their labor. For example, an ingenious man 
invents a machine which is of great value to the labor 
of the world, and builds a model or exhibits a drawinff 



112 ECONOMICS. 

of it. Any ingenious mechanic may from that model or 
draft construct and multiply the machine indefinitely. 
The labor of the inventor was purely intellectual and not 
connected with the ownership of any material thing, by 
the sale of which he can secure his own reward. As 
soon as his thought has been comprehended by another 
mind, it may be by that mind communicated to any num- 
ber of minds or to the whole world, and thus pass from 
the inventor without any compensation whatever. The 
public, the world, can well afford to give him as compen- 
sation for disclosing so valuable a secret, a monopoly of 
the manufacture and sale of that machine for a limited 
number of years. A patent right confers precisely such 
a monopoly. No right-minded man will hesitate to ad- 
mit that it is good economy for the government, as the 
representative of the whole community, to give to the 
inventor of such a machine a monopoly of its sale, and 
faithfully to protect him in the enjoyment of it. If it is 
an invention of universal utility, no government should 
refuse to grant the inventor a patent right on his appli- 
cation. It should be granted equally to an alien as to a 
native born citizen. 

The same may be said of the copyright of books^ and 
of the products of purely intellectual labor generally^ or 
more generally still, of any product of labor or skill the 
producer of which has no natural security for obtaining 
the reward of his labor. The principle however does 
not apply to professional skill and talent, though it may 
be purely intellectual. For exam'ple the function which 
the lawyer performs is one of urgent necessity for the 
protection of the rights of individuals. No man can per- 
form that function as well as he can, with less natural 
talent and less skill than he possesses, and no one can 
acquire the requisite knowledge of law and readiness in 
applying it to particular cases with less time and labor 



MONOPOLIES. 113 

than he has bestowed upon it. He has therefore every 
assurance that men will be glad to pay him the full value 
of all the professional skill which he possesses, and can 
put in no valid claim to be protected by monopoly_, to 
secure to him a fair compensation for the service he 
renders. The same is true of all properly professional 
labor. 

There are a few cases in which labor not strictly iiitd- 
lectiialmay be protected by a monopoly. Such are the build- 
ing of bridges, and the establishing of expensive ferries 
across rivers or straits, to accommodate public traffic. 
It might often be true, that no man would be willing to 
make the necessary outlay, unless he could be insured a 
monopoly of the carrying trade across the water in ques- 
tion, at least for a term of years. In such a case the 
community w^ould often purchase the accommodation 
very cheaply by granting such a monopoly, and faithfully 
protecting the holder in the full enjoyment of it. All 
these are cases in which the holder of a monopoly ren- 
ders to the community a full equivalent for the privilege 
conferred on him. 

§ 84. But there is another class of monopolies of a 
very different character and which require a far more 
thorough and exhaustive examination. If we mistake 
not they can be justified by no plea of equivalent service 
rendered to the community. We refer to monopolies 
granted to certain branches of industry in one country., to 
shield them agai?ist the competition of similar i?tdustries in 
other countries. We find examples, in all exemption from 
competition granted to certain branches of manufactures^ 
to shield them from the competition of like manufactures 
in foreign lands, by imposing discriminating duties on 
imported products. It may seem to some a mistake to 
class such arrangements under the head of monopolies. 
But it seems to us that they belong under that head in 



114 ECONOMICS. 

the nature of the case, and we have sought in vain to 
find any other head under which the discussion of them 
can be introduced, without an obvious violation of logical 
arrangement. No fundamental law of the science calls 
for any such limitation of competition, but all conspire 
together to protest against it. Economic principles can 
deal with such legislation only in the form of protest. 
In principle such legislation does confer a monopoly, 
not always entire, but if not entire at least partial. Its 
effect is to protect one person, or a particular class of 
persons from a perfectly natural competition, which they 
must otherwise encounter. It is true that the method in 
which the end is sought to be accomplished is not by 
absolutely forbidding certain products to be sold in this 
country, but by compelling all foreign producers to com- 
pete with the American manufacturer under such con- 
ditions of disadvantage, as to amount to prohibition. It 
is proposed to accomplish this by levying such duties on 
articles manufactured abroad, that the foreign producer 
cannot pay the duty and still compete with the American 
producer. It is assumed, that by thus driving the foreign 
producer from our markets, the home producer will be 
able to demand such prices as will render a business re- 
munerative, which could not be profitable in presence 
of foreign competition. One would think the bare state- 
ment of the case might suffice, without further argument. 
No injustice can be done by calling such legislation a 
monopoly in favor of the American manufacturer. Such 
legislation abounds in this country at the present time, 
under the soft and taking pretense of " protecting home 
industry." 

§ 85. The phrase ^^ protection of home industry^' is most 
infelicitous iy and unfairly applied. Protection is a pre- 
cious thing, in which every good citizen believes. To 
protect the industry of every citizen, to secure to him the 



MONOPOLIES. 115 

unobstructed pursuit of his legitimate objects, and the 
full enjoyment of all the products of his labor, is the most 
sacred function of civil government. The resources of 
our planet can never be fully developed and applied to 
the uses of human well-being, till every portion of it 
where man can dwell, is under a government that can 
and will protect the industry of every dweller on the soil. 
This is true protection. Let the phrase " protection of 
home industry " be used in this its only legitimate sense, 
and there will be no controversy about the matter. 

But in the use that is made of the phrase by the 
advocates of what is called " Protection," it is wrenched 
away from this its proper and universally accepted mean- 
ing, and, without any even pretense of definition, applied 
to a device of their own, sustaining no relation whatever 
to the proper meaning of the word. Protection implies 
that the thing in behalf of which it is invoked, is in dan- 
ger from some hostile force. In this use of the word the 
hostile force against which industry is to be protected is 
natural competition. The interposition of the government 
is invoked to shield certain people from competition in 
trade, in order that they may be able to set such prices 
on their wares as will be satisfactory to themselves. As 
they press their demands upon the government, they ask 
in tones somewhat lugubrious; will not our government 
protect the industry of our own citizens ? This assump- 
tion is always false. Natural competition is the e7ieniy of 
no legitimate business. It only determines, what all the 
world is interested in knowing, who can make a given 
product of the best quality at the cheapest rate. Who- 
ever that person is, and wherever he dwells, it is cheaper 
to employ him than any one else, and any one who is 
permitted to own his own property, will employ him. 
Those who cannot compete with him will employ them- 
selves in producing something else which they can pro- 



Il6 ECONOMICS. 

duce in the face of competition. Let us suppose a case 
which is as clear as possible. Some man takes a fancy 
to produce coffee in Minnesota. No doubt by planting 
trees in hot houses, and supplying the requisite tempera- 
ture and other atmospheric conditions, coffee might be 
produced. When the trees are grown, and have yielded 
their first crop, the proprietor of this hot house coffee 
plantation petitions the government for " protection of our 
home industry." He says the competition of coffee grown 
within the tropics is quite ruinous to me. Is competi- 
tion this man's enemy? On the contrary it seems to be 
the only teacher that can give him wisdom, and make 
him see the folly of thus misapplying capital and labor. 
If he will heed its lessons, it will show him the necessity 
of employing himself in some more rational fashion. It 
never can be known whether a given commodity can be 
profitably produced in given circumstances of time and 
place, except by trying the experiment in presence of free 
competition. The competition wdiich puts that question 
to the test of a fair experiment is the true friend of hu- 
man industry everywhere. If you would know whether 
pig iron can be made as cheaply in Pennsylvania as in 
Scotland, try the experiment, and you will know. You 
never can know in any other way. 

% S6. The freest and widest competition is the best 
friend of all industry in another way. Let us suppose 
that manufactures have been recently established in any 
community, and are yet in their infancy. In what cir- 
cumstances will those manufactures soonest reach their 
maturity and perfection ? Obviously in the presence and 
under the full stimulus of the most perfect manufactures 
of the world. If the community in which they are situ- 
ated were isolated by natural barriers from all the rest of 
mankind, the low demands of the community around 
them would be supplied, and nothing more would be 



MONOPOLIES. 117 

aimed at. There would be little stimulus to improve- 
ment, and progress would be very slow. But if they were 
constantly in presence of the most perfectly manufactured 
fabrics of the world, the best models would be always in 
sight of their managers, and the strongest inducements 
would stimulate them to bring every process to the high- 
est perfection. If by legislation unfriendly to the impor- 
tation of manufactured goods, you compel that com- 
munity to accept their own manufactures, such as they 
are, and at such prices as are demanded for them, the 
inevitable result will be imperfect products at high prices. 
The aim of producers will be to obtain the highest price 
for the lowest cost. The effect of such legislative isola- 
tion will be the same as the effect of isolation by impass- 
able natural barriers. 

No one will deny, that if you would bring the schools, 
the literature, the science, the art, of any portion of the 
world to the highest perfection it must be done in direct 
competition with all that is noblest and most worthy of 
imitation in the intellectual progress of the world. Hero- 
dotus the father of history, and Homer the father of Epic 
poetry, were the most cosmopolitan men of antiquity. 
They made themselves acquainted with the knowledge, 
the wisdom, the civilization of their times. There is 
every reason to believe, that this is a condition of all 
progress, of all civilization. Competition is so far from 
being any man's enemy, that it is a great common force 
impelling the whole human race toward perfection. The 
enemy against which some men so plaintively implore 
their country's protection is purely a creation of their 
own imagination. 

§ 87. We have already incidentally remarked, that 
the general principles of the science are all adverse to the 
monopoly of protection^ and condemn and reject it as an 
intolerable anomaly. We have already shown that both 



Ir8 ECONOMICS. 

labor and capital obey laws of natural gravitation, which 
are irrespective of national boundaries. They tend to- 
ward the point of greatest demand as indicated by high- 
est remuneration, whether that point be on one conti- 
nent or another, or in the remote islands of the ocean. 
Neither has exchange any natural relation to nationality. 
It always seeks to buy at the point of greatest cheapness, 
and to sell at the point of greatest dearness, in whatever 
latitude or longitude those points may be found. It is 
confessedly one of the grandest functions of any civilized 
government, to protect its people in pushing their ex- 
changes to the extreme limits of humanity. 

The true economic theory is that the human race is one 
family. The Christian scriptures and our science are in 
respect to this matter perfectly at one. " All ye are 
brethren." The wealth of the world is the patrimony of 
this one family. Our problem as economists is to deter- 
mine by what laws, and under what conditions, this patri- 
mony can be most increased.y^ The true solution of this 
problem is, that every man shall employ his labor in pro- 
ducing that which has the greatest value possible to him, 
exchange that value where it is a maximum, and where 
the value which he is to receive in return is a minimum. 
In this way it needs no argument to prove that every man 
will be richer than in any other, and that as the wealth 
of a nation can be nothing but the aggregate of the 
wealth of its individual citizens, every nation will be 
richest when each of its citizens is richest. That the 



great laws of human nature which are the natural forces 
of theTcrehce wIlT,^ wFen^le ft tcT their own freedom of 
action, thus construct the economic system, is just as 
obvious as that universal gravitation will construct the 
solar system as it is. 

§ 88. To all this we often hear the reply made, — this 
is very beautiful in theory^ but it is 7nere theory. It will 



FREE TRADE, OBJECTIONS CONSIDERED. II9 

not work in the actual world that is. Friction is left out 
of the account. The real world differs so much from the 
world of conception as to make the theory quite worth- 
less. We believe this to be the only answer which it is 
possible to make to the arguments we have advanced. 
This answer, it should be observed, neither sets aside 
nor modifies one of those great natural forces on which 
we have insisted, nor pretends to deny that they must 
act in the manner we have pointed out. It is admitted 
then that they exist and must act as we claim. But the 
assertion is, that there are counteracting forces, by which 
our results will be essentially modified, so that our con- 
clusions will not stand the test of experim ent. The issue 
has therefore been reduced to the simple inquiry, — what 
is the friction, what aj^ the counteracting forces which 
we have failed to allow for ? It is therefore incumbent 
on us carefully to examine all suggestions which seem 
to point out anything of this character, and allow them 
their full weight. 



CHAPTER VIII. 

J^ree Trade, Objections Considered. 

§ 89. That system of perfect freedom of exchange 
between different portions of the human family, irrespec- 
tive of any national lines, which was advocated in a pre- 
vious chapter is generally called free trade. That term 
we shall frequently have occasion to use in much that 
follows. We therefore propose the following, 
' Definition, Free Trade is the liberty of every ma?i to 
buy where he can buy cheapest aiid sell where he can sell 



I20 ECONOMICS. 

dearest^ without any obstruction being thrown in his way 
by the interference of governmeiit. 

The advocate of the most perfect freedom of trade 
is no enemy to duties imposed purely and simply for the 
purpose of raising revenue for the legitimate purposes 
of government. He only protests against imposts which 
are of the nature of a monopoly, — imposts levied for the 
purpose of screening certain products from the competi- 
tion of foreign producers. The general subject of im- 
posts for revenue will be considered in its- proper place. 
It was necessary to say so much here to guard against a 
common misunderstanding. 

Let us then proceed to examine those counteracting 
forces, which it is claimed set aside the results to which 
we were conducted in the last chapter, by developing the 
great natural laws of the science. These laws it is said 
are purely theoretic. The friction of really existing 
things it is said renders them useless in practice. What 
then is the friction ? 

§ 90. First, // is said that no nation can prosper with- 
out variety of industry^ and that free trade would limit 
the labor of a nation to the s mallest numb er of industries, 
and thus be fatal to its prosperity. This argument has 
been urged, perhaps under every possible aspect, by 
Henry C. Carey, who is certainly the most popular, and 
perhaps the ablest advocate of " Protection " in the Eng- 
Hsh language. It therefore deserves to be treated with 
respect and answered with candor. 

That every great and prosperous nation may be ex- 
pected to exhibit a vast and complicated variety of in- 
dustry, will be as cheerfully and fully admitted, as any 
advocate of Protection could desire. Free Trade is 7iot 
opposed to variety of industry. It would not however 
pursue profitless industry for the mere sake of variety. 
Accuracy however requires us to say that while the 



FREE TRADE, OBJECTIONS CONSIDERED. 12 1 

proposition^ that a nation cannot prosper without variety 
of industry, is generally true, its truth is not universal 
and absolute. For aught we know, it may prove true, 
that Colorado has mineral wealth so abundant and so 
permanent, that she may be a prosperous state with a 
single industry, and that she might be even if she were 
an independent nation. The natural wealth of a nation 
may be limited to a single product, and yet that product 
may be so abundant, and so important to all the rest of 
the world, that she may rise to great wealth without any 
variety of industry. As a generalization therefore the 
proposition fails. It must not be applied in the argu- 
ment as a universal law. We must look to it that there 
is not something in the peculiar conditions of the case to 
render it inapplicable. 

In most cases national prosperity will be indicated 
by great variety of industry. But which is cause^ and 
which effect! Do nations attain to great prosperity be- 
cause they have great variety of industry t Or does their 
industry expand itself into endless variety, because they 
are very prosperous? It is very easy to show that in 
most cases variety of industry is the effect of prosperity, 
and not primarily its cause. 

To the early settlers of that region of yast agricultural 
fertility, the Upper Mississippi Valley, variety of industry 
was simply impossible. Manufactures, except the pro- 
ducts of the spinning-wheel and the hand-loom, were out 
of the question. The first settlers had neither machinery 
nor materials and no capital with which to procure either. 
Money was worth four or five per cent a month, to be 
used in purchasing those lands of exhaustless fertility at 
a dollar and a quarter an acre, and in preparing them 
for a crop, by subduing the rank growths of nature with 
which they were covered. Mr. Henry C. Carey himself 
could hardly claim that manufactures could afford to pay 
6 



122 ECONOMICS. 

those rates of interest. The first settlers could do noth- 
ing but avail themselves of the exuberant fertility of the 
soil, and send its produce to the best market to which 
it would bear to be transported, receiving in return such 
things as they needed. Had a protectionist of Mr. Carey's 
school gone on a mission to those hardy pioneers, to 
preach to them the gospel of variety of industry, he would 
have preached to very unappreciative audiences. To 
understand how protective duties on foreign manufactures 
could give them variety of industry, would have been 
beyond their mental capacity. They would have been 
able perhaps to understand that such a duty would ren- 
der manufactured articles dearer than ever, but surely 
they had always found them quite dear enough. 

Yet prosperity was not impossible to those people. 
They did prosper greatly by this single industry, and by 
the prosperity of their agriculture came in due time the 
possibility and the necessity of more varied industry. 
Accumulated wealth must be valueless, or seek new 
methods of profitable investment. Their industry be- 
came from year to year more various, because their 
increasing wealth must find other modes of investment, 
these new investments would in their turn become the 
cause of still greater prosperity. But primarily they 
were the effect, not the cause of prosperity. 

If the Sioux Indians should discover in those barren 
wilds over which they roam, some tract of fertile land, 
and determine to abandon the chase and devote them- 
selves to the regular pursuits of civilized life, their in- 
dustry must at first be purely agricultural. They must 
exchange with their white neighbors the products of the 
soil for the products of mechanical skill which they need. 
As they prospered, they would be able to cultivate the 
mechanic arts among themselves. This would make their 
accumulation of wealth more rapid. The accumulations 



FREE TRADE, OBJECTIONS CONSIDERED. 1 23 

of successive generations would render variety of industry 
possible and necessary. To such a people variety of in- 
dustry is as truly a growth, a necessary growth as the 
matured oak of the forest is the 'result of growth from the 
acorn. Such must be the progress of any people, from the 
poverty of its beginnings to the wealth of its maturity. 
Simple industry comes first, then as wealth increases vari- 
ous industry becomes possible and inevitable. To insist 
on variety of industry as the primary cause of a nation's 
prosperity, is to manifest a profound ignorance of the laws 
of national growth. It is in the strictest sense prepos- 
terous. It is to insist on the end before the besrinnino-. 
A greater delusion was never imposed on a credulous 
people, than to make them believe, that by discouraging 
the introduction of the products of skill and machinery 
from abroad, which they need now to comfort their lives 
and aid their toil, they can secure the production of such 
commodities at home, under circumstances more favor- 
able than to procure them in exchange for the products 
of their agriculture, and that they shall thereby become 
at once a skillful manufacturing people, with all that 
variety of industry which belongs to nations of old civ- 
ilizations and vast accumulations of wealth. This argu- 
ment for protection is certainly fallacious. 

§ 91. Free Trade has no tendency to retard the intro- 
duction of every profitable variety of industry. It can not 
be too steadily borne in mind, that every man of every 
nation will increase his wealth most rapidly by buying of 
him that will sell cheapest, and what is for the interest 
of every man must be for the interest of a whole world. 
If therefore any branch of industry can be profitably 
pursued in the face of all natural competition, free trade 
will be no hinderance to its introduction; if it can not 
be profitably pursued, free trade will prevent its intro- 
duction only because the products of that branch of in- 



124 ECONOMICS. 

dustry can be more cheaply imported from abroad than 
made at home. The mere fact that it can not be profit- 
ably manufactured at home is positive proof that men 
in that community can employ themselves more profitably 
in producing something else wherewith to purchase that 
particular product from abroad. Free trade therefore en- 
courages and invites to every kind of enterprise that can 
be prosecuted with profit, but this is not all which it 
accomplishes. It s-aves a community from wasting 
itself upon unprofitable enterprises. Variety of industry 
is not a good thing in itself, for a community any more 
than for an individual. It is only profitable industry 
that enriches. If for the sake of variety of industry an 
individual engages in occupations in which he cannot 
compete with his neighbors, he will be impoverished, not 
enriched. This is as true of communities as of indi- 
viduals. No man can commit greater folly than to insist 
on doing for himself what another stands ready to do 
for him at less cost. If a blacksmith can earn the mak- 
ing of two coats by shoeing horses while he could make 
one for himself, it would be nothing but stupidity and 
folly to leave shoeing horses, to make his own coat, when 
he had no reason for doing so except that he desired to 
have a variety of industry. What is folly in an indi- 
vidual is no less folly in a community. The whole truth 
is, that every man and every people ought to have just 
so much variety of industry as can be prosecuted profit- 
ably. Free trade furnishes the only possible means of 
determining, whether in given circumstances any branch 
of industry is profitable or not. 

§ 92. Second. // is affirmed that it is impossible to 
establish manufactures in a nation where they have not 
hitherto existed^ in presence of the competition of other na- 
tions whose mamifactures are already in their full ma- 
turity. This objection very strikingly illustrates a cer- 



FREE TRADE, OBJECTIONS CONSIDERED. 1 25 

tain confusion of thought, which is an unfailing charac- 
teristic of argument for protection. It is said the interest 
of foreign, — say of English manufacturers, is so great in 
having the American market entirely to themselves, that 
they will crush out any manufacturing enterprises of our 
own by a ruinous competition. The confusion of thought 
appears in mingling with the matter the idea of nation- 
ality . Grant that the danger here referred to is real and 
to any degree imminent, it is just -as likely to occur be- 
tween two different sections of our own country, as be- 
tween England and the United States. Boundary lines 
of nations are totally irrelevant to the matter. The 
manufacturers of the Atlantic States are just as likely to 
crush out the infant manufactures of the Mississippi 
valley, as the manufacturers of England are to crush out 
those of the United States. If for this reason our coun- 
try needs protection against English competition, the 
Mississippi valley still more urgently needs protection 
against the competition of the Eastern and Middle States. 
If it is impossible to establish American manufactures 
in face of English competition, it is certainly not easier 
to establish Western manufactures in face of Eastern 
competition. 

This objection indicates no less confusion of thought 
in the conception which it implies of the nature of com- 
petition^ To hear some men talk, one would suppose 
the whole political power of England herself were to be 
employed in crushing out an incipient American man- 
ufacturing enterprise. By the application of a little 
analysis, we shall readily see that it is not the combined 
force of the English nation controlled by one social per- 
sonality that is to be apprehended. It is the competition 
of thousands of English manufacturers, with all their 
mutual rivalries. They will compete with each other 
just as freely in the markets of New York, Boston and 



.126 ECONOMICS. 

Philadelphia, as they will in those of London, Liverpool 
and Glaso;ow. The question is, whether all these rival 
interests are likely to be combined in our markets, to 
crush out an infant manufacturing enterprise by selling 
below cost. Let us suppose that our wooJen manufac- 
tures are thought to be threatened with this danger. 
The case is, that under the regular action of free com- 
petition, the manufacturing of woolen can be profitable. 
In this state of facts^that branch of manufactures cannot 
be crushed out by competition, except by supplying our 
market with foreign woolens at less than cost. The 
question then is whether English manufacturers can and 
will combine together to supply 50,000,000 of people ^W^Acir^ 
with their products at less than cost. This is an exact 
statement of the nature of the danger, and enables us to 
form an exact estimate of its magnitude. 

The truth is obvious enough. The only process by 
which such a destruction of our manufactures could even 
be attempted, is one by which English manufacturers 
would bring inevitable ruin on themselves. In this state 
of the facts, and under free trade, it must be just as easy 
to found new establishments for the manufacture of 
woolen on American, as on English soil. The supposed 
danger is quite imaginary, and the necessity of protect- 
ing our infant manufactures is a shallow delusion, which 
a little tranquil thought would very easily dissipate. 

§ 93. Third. // zs said that Free Trade deprives the 
land of the manures which result from the consumption of 
its products. 

This is also a point much insisted on by Mr. Carey, 
and the men of his school. But a careful examination 
will show that all the truth there is in this objection, is 
only a verification of Solomon's proverb^ "The destruc- 
tioiLjQf^he_poo.r is their poverty." That proverb would 
still be true as ever, if Mr. Carey should succeed in ap- 



FREE TRADE, OBJECTIONS CONSIDERED. I27 

plying his theory of protection to the uttermost. No 
one acquainted with the subject will deny that, in order 
to preserve the productive power of the soil unimpaired, 
it is necessary to restore to it the offal which remains 
after the consumption of its products. The law of rent 
is founded in nature. The soil gives generously, but can 
continue to give, only on condition that when man has 
served himself of her products, he return to her the un- 
consumed remnant. 

But the possibility of doing this is unavoidably de- 
pendent on the various conditions under which land is 
cultivated, and no artificial legislation can place different 
countries, or different portions of the same country, in 
circumstances of equal advantage in this respect. When 
civilized men first sought a home amid the mighty forests 
of Ohio and Indiana, they were under an unavoidable 
necessity of cutting down and reducing to ashes masses 
of timber which, were it now in existence, would in many 
instances be worth more than the farms on which it grew. 
Yet civilization could make no beginning there without 
that vast and as it now seems sorrowful waste. Even 
after those forests had been reduced to ashes, the ashes 
themselves could not be utilized. The manufacturing of 
potash was not yet established in those wilds so remote 
from the markets of the world. Even yet the inevitable 
waste was by no means at an end. The product of those 
farms could, perhaps for generations, find no market ex- 
cept at distant cities, from which its remnants never 
could be returned to the land on which it grew. As to 
fertilizing those farms it could make no difference, whether 
it found a market in a North American, an English or a 
South American city. 

It has happened thus in all parts of our country by a 
necessity inherent in the very nature of the case. The 
products of the farm could for a time find consumers 



128 ECONOMICS. 

only at a great distance, and could not make the natural 
return to enrich the soil on which they grew. The tillers 
of those farms have not only been under a necessity of 
destroying the magnificent forests which were their spon- 
taneous products, and of allowing the very ashes to which 
those forests were reduced to lie almost useless on the 
ground, but of consuming for generations the rich mould 
accumulated on their farms, by the decay of the luxuriant 
vegetation of ages, before society could be brought to 
such a condition of maturity, as rendered practicable the 
fertilization necessary to restore the productive power of 
their exhausted land. 

It must be admitted that this is rather an inviting 
theme for pathetic declamation, and if any one has a 
taste for that style of composition, he may find an abund- 
ant supply of it in the writings of Mr. Carey's school of 
economists. But how it has any real relation to the 
question under consideration is not very apparent. To 
establish various industry in the forests of Ohio and 
Indiana, create a home market for the products of those 
newly cleared farms, utilize their magnificent forests and 
provide fertilizers to prevent the waste of the productive 
power of the soil, w^as as impossible as to mature har- 
vests while those forests, with a density of foliage which 
sunbeams seldom penetrated, shaded all the ground. 
No doubt the wealth of a country is greatly increased by 
sowing it over thickly with cities and villages and manu- 
facturing machinery. But the evil is quite independent 
of the nationality with which we trade. It results from 
the fact that the products of the farm must be consumed 
at a distance from the spot on which they grew, and not 
from their being consumed on the other side of a national 
boundary ; and it admits of no effectual remedy so long 
as it remains true, that the inhabitants of a new settle- 
ment can purchase many things from other communities 



FREE TRADE, OBJECTIONS CONSIDERED. 1 29 

more cheaply than they can make them for themselves. 
It would be far more convenient forJ;he infant and for 
its mother, that it should walk rather than creep; but it 
will still remain true, that creeping is a necessary stage 
in the process of learning to walk. Lectures delivered 
to infants and their mothers, on the superiority of walk- 
ing to creeping, will not be found to be of much practical 
utility. Mothers will gladly admit the truth of what you 
say, but babies will still creep before they walk. And so 
will communities in spite of all the theoretic exhortations 
of Mr. Carey and his followers. 

§ 94. Fourth. // is asserted that free trade is destruc- 
tive of national indepe7idence. 

We suspect that this objection has more influence in 
reconciling a great number of minds to our present pro- 
tective legislation than any or all other arguments. In 
order to deal with it fairly, we must endeavor justly to con- 
ceive what sort of national independence that is which is 
practicable and desirable. Every man ought to be jeal- 
ous of his own independence. There is a true independ- 
ence, the loss of which is the loss of manhood, almost of 
personality. It is the right and the habit of relying on 
one's own intellect in the formation of opinions, and of 
governing his actions by his own free choice. Such an 
independence is not at all inconsistent with the innu- 
merable dependencies of social life. It is not necessary in 
order tp maintain it, that one should keep himself in such 
relations to his fellow men, as to be prepared at anytime 
to dispense with the help of all his fellow-beings, and to 
inaugurate a state of war between himself and the rest of 
the world, whenever he may think it desirable or neces- 
sary. Such a notion of his own independence would 
unfit any man for the society of men. All true manhood 
acknowledges all these innumerable social dependencies, 
as cheerfully as it asserts independence in the only 
6^- 



130 ECONOMICS. 

sense in which any wise and good man would be willing 
to be independent. 

The time conception of national independence is in princi- 
ple precisely the same. It is the conception of an inde- 
pendent social personality among the nations, with full 
right and power and will to exercise all the functions of 
sovereignty; but still admitting and delighting in all the 
innumerable social dependencies which bind the human 
race together in one great brotherhood of nations. 

§ 95. It is asserted, that if we allow ourselves to be 
dependent on the manufactures of any other natio?i, we shall 
be brought i?ito great distress in case of a war with that 
nation, for the want of those products for which we have 
been accustomed to depend on her industry. When this 
objection is urged, it is forgotten that all such depend- 
ence is mutual. If in case of a war with a nation with 
whose people we have a large trade, we are liable to be 
distressed by the cutting off of our accustomed supplies, 
our enemies will also be distressed by the failure of sup- 
plies which they have been accustomed to receive from 
us. If for example we are ever involved in another 
fratricidal war with England, (and no war between the 
United States and England can be other than fratricidal,) 
it is doubtless true, that we shall be put to great incon- 
venience for the want of what we have been accustomed 
to purchase from her. But let no one suppose she would 
be put to no inconvenience for what she is accustomed 
to receive in return from us. On the contrary she would 
be very much more distressed than we. We receive 
from her, for the most part, luxuries, and our manufactur- 
ing industry could be rapidly quickened to supply the 
deficiency. She on the contrary receives from us the 
raw material of her manufactures, without which her in- 
dustry must cease, and the daily bread of millions of her 
people. No fleets and armies could distress England 



FREE TRADE, OBJECTIONS CONSIDERED. I3I 

as she would be distressed by bringing the food supply 
of vast numbers of her people into peril. The mere loss 
of the United States as a market for her manufactures 
would annoy and distress her more than all our arma- 
ments. So far is it from being true, that our dependence 
on the manufactures of England would be a disadvantage 
to us in case of a war, that it would give us an immense 
advantage in the conflict. If we must have war, let it be 
with some nation that is dependent on us for a market 
for the products of her industry, and for the food of her 
people. He who on this ground objects to free trade 
with Great Britain is sadly blinded to the real interests 
of his country. 

§ 96. If we take a true view of the nature of national 
independence, and of the mutual dependence which free 
trade implies and promotes, we shall never cease to give 
to the doctrines of free trade our unqualified adhesion. 
It is the obvious design and will of the Creator, that all 
the human race should be bound together by ties of 
mutual helpfulness, and live in perpetual harmony with 
each other. Nothing tends so powerfully to R];aiililte 
this, as perfect freedom of commercial intercourse. Na- 
tions that are bound together by ties of mutual depend- 
ence so strong as those which unite England and the 
United States, especially so strong as they would 4De if 
we on our side adopted free trade as heartily and thor- 
oughly as England does on hers, cannot go to war, they 
must therefore do each other justice, and by so doing 
preserve the peace. Already in our past history our 
commercial relations have again and again saved us from 
engaging in deadly strife. It is devoutly to be wished, 
that all remaining barriers to perfect freedom of com- 
mercial interchange may soon be removed, and that thus 
the peace of these two great free nations may be secured 
for all the future. 



132 ECONOMICS. 

Every philanthropist looks forward with longing hope 
to a good time coming, when men shall " beat their 
swords into plowshares and their spears into pruning- 
hooks, and learn war no more." One of the most in- 
dispensable and hopeful conditions of the realization of 
such an order of things, is the establishment of perfect 
freedom of trade among the men of all nations. The 
selfish national pride which scorns that universal natural 
dependence of man on man, that mutual helpfulness 
whereby the products of every soil and climate and civ- 
ilization shall be exchanged for those of every other, so 
that all men may enjoy all the bounties of the Creator, — 
that selfish malignant pride and false conception of na- 
tional independence, must be banished from the minds of 
men, and the sentiment of fraternity must succeed. 

§ 97. Fifth. It is said th^it/ree trade might be a very 
good thi7ig, if other nations would agree to it ; hut that 
while the rest of the world to a great extent adheres to pro- 
tectioJt, it is necessary for us to do the same. 

If this is the view taken, it is surely incumbent on us 
to accept free trade in our relations to any nation that 
adopts a free trade policy towards ourselves. If this is 
conceded, then we may at least have free trade with 
Britain, for her policy towards us is as free as could pos- 
sibly be asked. The way is then open for perfect free- 
dom of commercial intercourse with England and all her 
colonies, and our government ought to los6 no time in 
consummating a league of commercial freedom with the 
whole English-speaking world. The uniting of all the 
populations of the earth that use the English language, 
in such a league, would be an event of great and benefi- 
cent significancy to all mankind. 

But this objection is capable of a much more com- 
prehensive answer. The fact that the commercial policy 
of any nation is restrictive and exclusive, is no reason at 



FREE TRADE, OBJECTIONS CONSIDERED. 133 

all why we should not buy from the people of that nation 
anything which we can procure from them more cheaply 
than we can produce it ourselves, or obtain it elsewhere. 
The obvious rule of economy — buy where you can buy 
cheapest— is entitled to cut its way through all national 
rivalries, jealousies and antipathies. Some nation may, 
by partial and ruinous laws, exclude from her markets 
what we have to exchange with her people. Such laws 
may operate to produce exclusion of commercial inter- 
course. We may be in such circumstances that we cannot, 
profitably buy of her people unless we can give our own 
products in exchange. In that case commercial inter- 
course must be at an end. She has thrown barriers in 
our way which we cannot surmount. But in such a case, 
it would be quite unnecessary and useless for us to re- 
taliate, by imposing discriminating duties against the 
products of her industry. She has herself excluded them 
from our markets. If my next door neighbor has built a 
solid stone wall five feet thick and ten feet high, to ex- 
clude me from his premises, that wall is perfectly suffi- 
cient to prevent any intercourse between us. It would 
be great stupidity and folly for me to build another sim- 
ilar wall by the side of his, for the purpose of retaliation. 
It may however be that the products which she ex- 
cludes we can exchange elsewhere for something which 
she will admit, perhaps for gold, which no nation rejects. 
It may therefore still be true, that in spite of- her ex- 
clusiveness, we can obtain from her certain needed com- 
modities more cheaply than we can obtain them else- 
where. In that case the impolitic exclusiveness of her 
legislation is no reason at all why we should not avail 
ourselves of the advantage of buying of those that will 
sell cheapest. If therefore her people are disposed to 
offer in our markets commodities which we need, more 
cheaply than any one else will sell them, why should we, 



134 ECONOMICS. 

in mere retaliation for her suicidal exclusiveness, refuse 
to purchase ? To do so is childish and unreasoning folly. 
If 1 raise cattle and my neighbor raises horses, it is very 
childish in me to refuse to buy of hira a horse which he 
offers me at a bargain, because he refuses to buy my cat- 
tle when he needs them, and I offer them to him on ad- 
vantageous terms. Revenge is by many considered very 
sweet, but it has no commercial value. It is no wiser 
between nations than between individuals. In either 
case it is unwise, mean and degrading. If we have not 
some better reason for retaining our policy of exclusive- 
ness than national retaliation, it were wise to abandon 
it with as little delay as possible. 

§ 98. It is alleged^ that protection is necessary, to en- 
courage the acquisitio7i of skill in manufactures. 

It is inconceivable that such a provision can be neces- 
sary, when we remember that wages are higher, as a gen- 
eral rule, in our country than in any country of Europe, 
and that our country steadily receives a vast emigration 
from those countries with whose manufacturing skill we 
have chiefly to compete. There can be no difficulty 
under these circumstances in attracting to this country 
by the offer of American wages any number of skilled 
laborers we may need. The notion that in a case like 
this it can be necessary to impose on all manufactured 
goods duties varying from twenty per cent to more than 
a hundred per cent of their value, for the encouragement 
of manufacturing skill, is in the last degree absurd, and 
indicates that he who urges it, draws much more from 
the resources of his imagination, than of clear practical 
thought. 

ProtectioJi does not encourage but discourages the acquisi- 
tion of manufacturing skill. Such skill is the child of 
free, sharp, practical competition. If American manu- 
facturers are to be as skillful as those of any other nation, 



OBJECTIONS TO PROTECTION CONSIDERED. I35 

they are to become so, by standing face to face with the 
most perfect manufactures of the world, and competing 
with them with no shield between. If a protective duty 
is interposed, it will relieve our manufacturers from the 
necessity of equalling the best foreign products, and 
thereby render the acquisition of the highest skill un- 
necessary to their success. To encourage manufacturing 
skill by such protection, is like encouraging industry by 
reheving men from the necessity of labor for the sup- 
port of themselves and their families — a method which 
we believe has never been found to be very successful. 



CHAPTER IX. 

Objectio7ts to Protection Considered. 

§ 99. In the last chapter the objections which have 
been urged against free trade by its leading opponents 
were carefully examined. In the present chapter we 
shall present a i^sN considerations which seem to us quite 
fatal to the whole scheme of protection. It is the aim oj 
that system to screen certain branches of industry from the 
co7npetition of like industries in other countries. The mea7ts 
are entirely i?iadequate to the end. No police force which 
such a nation as ours can employ, can suffice to enforce 
our present revenue system, along ten thousand miles of 
sea coast, and three thousand miles of inland boundary. 
Where (as is to a great extent true under our protective 
system) the duty sustains a large ratio to the price at 
which the commodity is customarily sold, the temptation 
^^ xEIHSSii^^ is exceedingly strong. It might be antici- 
pated beforehand, that in such a country as ours, it could 



136 * ECONOMICS. 

not be prevented against so strong a motive, and experi- 
ence demonstrates that it cannot. The difficulty grows 
largely out of the fact, that the consciences of the 
people are never with such restrictive laws, — not even 
the consciences of those who make and advocate them. 
There are few who would not evade and violate them 
when they could do so without any risk of incurring the 
penalty. Such laws can only be enforced by an omni- 
present and ever vigilant police force — such a police force 
as along the whole border of our country is impossible. 
Consequently the branches of industry to be protected 
are not shielded from competition as the government has 
undertaken to shield them, and men who have imported 
goods under the law, and honestly paid the duties, are 
greatly injured by the competition of those who obtain 
foreign goods without paying any duty at all. Those 
well acquainted with the commercial intercourse between 
the United States and Canada know the truth of what 
we affirm. 

Such a state of facts is very injurious to public morals. 
All laws which are unsustained by individual conscience 
are morally injurious. They tend to impair the force of 
law as a rule of action. There are thousands who will 
resort to expedients for evading our revenue laws, who 
would never do a thing which was in itself contrary to 
their sense of honor and right. To evade the law comes 
to be regarded as a very venial sin, or no sin at all. No 
government on earth can afford to forbid what no one 
would have regarded as wrong had it not been forbidden, 
and to enforce the prohibition. Such legislation on any 
subject weakens the hold of the government on the con- 
sciences of the people. When the great body of the people 
in their own individual capacity can be thoroughly con- 
vinced, that it is dishonorable to buy a foreign product 
in preference to a domestic one simply because it is 



OBJECTION TO PROTECTION CONSIDERED. 137 

cheaper, the protective system may be enforced without 
difficulty, and with perfect safety to public morals. But 
so long as no man sees any dishonor in preferring the for- 
eign to the domestic commodity because of its cheapness, 
the enforcement of such laws will be often impossible, 
and always difficult and of evil moral tendency. 

§ 100. The protective systejn tends to co7istruct the whole 
economic fabric upon a wrong prijiciple and to give it a 
wi'ong directio7t. By a code of laws which permeates and 
pervades all the economic machinery of society, the gov- 
ernment treats competition as a public enemy, and pro-- 
vides for shielding from its influence branches of industry 
in which capital is invested to the amount of hundreds of 
millions. By this means not only are all those who en- 
gaged in the protected branches of industry taught to re- 
gard competition as their natural enemy, and to look to 
the government more and more to shield them from it ; 
but other men, whose trade lies not within the charmed 
circle, come to regard competition as their enemy also, 
and become painfully conscious how inconvenient it is to 
them, and even though they have no prospect of legislative 
protection, they begin to look anxiously around for some 
device by which they also may escape annoyance from the 
common enemy. A nation whose legislation is strongl}'- 
protective in its character will always be full of innumer- 
able and endlessly varied comb inations of producers, 
whereby they seek to fix their own prices on their pro- 
ducts, without the necessity of being controlled by com- 
petition. 

England has for ages sustained by her legislation and 
handed down from generation to generation the privileges 
which distinguish her aristocracy from the mass of her 
people. Her laws have divided society into two ranks 
only. But custom has taken the idea from the law, and 
constructed many other grades as distinct as the one 



138 ECONOMICS. 

which her laws originated. For many centuries every- 
thing in that country has been graded. By a very anal- 
ogous process, all American trade is at present seeking 
to secure for itself the privileges enjoyed by the pro- 
tected industries, and presents the aspect of a general 
struggle so to constitute all its arrangements as to escape 
the natural and healthful influence of competition. This 
is at present among the chief obstacles to the growth of 
our manufactures, and the expansion of our industry into 
all that rich variety which our soil and climate admit. 

§ 10 1. Protection corrupts our national legislation. 
Does any one believe that our present tariff of duties is 
the result of calm enlightened statesmanship, apphed 
with judicial impartiality to all the interests affected by 
it? Is it the result of any statesmanship at all? He 
who thinks so, is the victim of a good natured credulity, 
which is more worthy of the prattling innocency of child- 
hood, than of the sober good sense of mature manhood. 
It is just such a set of laws as no man living would 
make, if it were submitted to his judgment to decide 
what laws are desirable and wise. It is a clumsy patch- 
work, which has resulted from a compromise between 
the conflicting demands and confused clamors of all the 
great branches of our industry that encounter any foreign 
competition, besieging and begging Congress for more 
protection — more protection. The question with our 
legislators is, not whose claims are really strongest and 
most righteous, but whose clamors are loudest, who can 
bring most votes to support our party, or if disobliged 
alienate most votes from it. The bearing of the tariff 
on the next election has had a great deal more influence 
than its bearing on the prosperity of our people. That 
with resources such as ours, and a national debt of more 
than $2,000,000,000 to provide for, our revenue system 
should be constructed and controlled by such influences 



OBJECTION TO PROTECTION CONSIDERED. 1 39 

as these, is a humiliation of our country in the eyes of 
the nations. It is disgraceful to our civilization. To 
this humiliation however must we submit, till we throw 
off this nightmare of protection. It must also be added 
to all this, that in this combination of evil influences, 
direct bribery of the legislator to procure his vote in favor 
of the further protection of some particular industry^ is 
we fear no uncommon element. 

§ 102. The protective system is in its own proper nature 
tmsociaL It tends to reduce the intercourse of nations 
to a minimum, and proportionally to weaken all the ties 
of brotherhood which naturally bind the human family 
together. Such a tend,ency in such a country as ours is 
full of danger. Our safety requires that all the forces 
which tend to national unity be strengthened, and that 
all divisive forces be as far as possible eliminated. Pro- 
tection is a divisive force. With the exception of slavery, 
nothing has ever exposed our national unity to so much 
peril as the attempt to carry into effect the protective 
system. Any one who will candidly consider the sub- 
ject will, we rnink, acknowledge that our efforts at pro- 
tective legislation, strangely persisted in, had great in- 
fluence in producing those violent antipathies which 
were ultimately developed into the great rebellion. 

Nor are we safe for the future. If the doctrines of 
protection are to be accepted as true, there are no two 
portions of the earth between which there are stronger 
inducements to apply them, than the New England and 
Middle States on the one hand, and the great States of 
the Upper Mississippi Valley on the other. The man- 
ufactures of the Northwest are powerfully repressed by 
the competition of those of the New England and Middle 
States, and the agriculture of the latter has been greatly 
depressed, in large districts annihilated, by the competi- 
tion of that of the Northwest. If protection is the true 



I40 ECONOMICS. 

and proper remedy for such difficulties, then should the 
AUeghanies be a dividing line of nations. If men be- 
come generally convinced that the doctrines of protection 
are true, and would relieve New England agriculture from 
its great depression, and speedily give to the Mississippi 
Valley " variety of industry," the x\lleghanies will become 
a boundary of nations, and no man can predict into how 
many rival nationalities the territory of the present 
American Union may ere long be divided. 

§ 103. The protective system as it exists in our country 
is self-co7itradictory and self-destructive. No one will deny 
that it is possible, that a single branch of industry might 
be encouraged and stimulated into more rapid growth 
by the monopoly of protection. Let us suppose that up 
to a certain time free trade had prevailed, when persons 
interested in establishing some new industry had found 
foreign competition inconvenient, and applied to the gov- 
ernment for a protective duty. The government grants 
the request and the revenue law is modified accordingly. 
The petitioners go away for the present satisfied. Let 
us suppose that these petitioners were manufacturers of 
woolen cloth. The woolgrowers are not slow to discover 
that on the one hand they are obliged to pay more for 
woolen cloths^ while on the other hand they are severely 
pressed by the competition of foreign grown wool. They 
apply for protection, and it cannot be refused. This 
takes away a part of the value of the privilege conceded 
to the manufacturers of wool, and they are discontented. 

The principle of protection is now established, and 
every industry which encounters any foreign competition 
will demand and cannot be denied a share in it. The 
iron men of every grade must be protected, and every 
dime of protection which is granted to them increases 
the price of machinery for the manufacture of woolens, 
and thus damages the woolen interest. The cotton men 



OBJECTION TO PROTECTION CONSIDERED. I4I 

too must be beard. Tbey bave to pay bigher wages to 
their laborers because tbe cost of Uving has been in- 
creased. Workmen in this climate must have woolen 
cloth. The cost of machinery is increased and therefore 
it costs more to manufacture cotton goods. They too 
must be protected. Soon the wool en _ in terest has lost 
more by monopolies,. granted to other .industries than.it 
gained by the one originally granted to itself, and it 
besieges the government more clamorously than ever for" 
more protection, and with a much more powerful argu- 
ment. It now wants to be protected, not so much against 
foreign competition, as against the monopolies granted 
to other industries. These one and all are soon again 
thronging the lobbies of Congress, demanding more pro- 
tection. The privilege granted to one industry is de- 
structive of that granted to every other, and no man can 
tell to-day, whether his particular industry is on the 
whole benefited or injured by the protection which 
actually exists, or whether if the whole were at once swept 
away, his interest would not be actually relieved of an 
oppressive burden. But all still worship with unfaltering 
faith at the shrine of exclusiveness, and clamor for more 
protection, as the panacea for all their ills. The coal 
interest must have protection, however much that may 
injure the iron interest, and the iron interest must have 
protection, however that may affect the woolen and the 
cotton interests. If protectionists could demonstrate 
some great law of nature, by which it might be deter- 
mined with accuracy when and to what amount protec- 
tion should be granted, the whole thing might be reduced 
to order and law and reason. But till that can be done, 
(and it never can be done), it will present a scene of 
wild confusion, self-contradiction and self-destruction. 

It is impossible to escape this conclusion, except by 
denying that protection does raise the price of protected 



142 ECONOMICS. 

products. Upon such a denial protectionists do often 
venture. It is a sufficient proof that such denial is futile 
and absLjjr^, that if the protecting duty does not raise 
the price of the protected commodities, it can in no man- 
ner protect against foreign competition. It can have 
this effect only by enabling the home producer to demand 
a higher price for his commodities than he could com- 
mand in face of the free competition of foreign products. 
This is the only beneficial influence which it can exert on 
the home producer. But we are able to produce on this 
point the sterner evidence of facts. We are furnished 
the following figures on the authority of a merchant of 
the highest intelligence, the foreman in the carpet room 
in one of the largest commercial houses in the city of 
New York. The following are the items of the cost of a 
five-frame Brussels carpet per yard, in gold, of English 
manufacture, in the city of New York, viz. 

Cost in England . 89 cents. 

Duty... 64 " 

Exchange, freight, etc 22 " 

Total cost in New York $1,75 

A carpet of American manufacture of the same qual- 
ity is sold by the New York dealer at the same price 
with this English made carpet. Does then the protec- 
tionist expect us to believe that the American dealer 
could sell his English carpet at the same price as now, if 
he were relieved from the necessity of paying that duty 
of sixty-four cents per yard? Or that the American 
manufacturer could obtain the same price for his goods 
as now, if Enghsh carpets could be introduced into the 
market free of duty, or by paying only a revenue duty of 
ten or fifteen per cent on the cost in England ? It re- 
quires some courage to assert in view of such figures that 
a protective duty does not enhance price. It would be 
easy to procure similar figures in respect to many other 
products which are highly protected. How long our 



OBJECTION TO PROTECTION CONSIDERED. 1 43 

present protective system is to be adhered to against 
such facts as these we are quite unable to predict. 

§ 104. One point more demands our attention before 
we dismiss this subject. Mr. Fawcett, after having very 
clearly demonstrated free trade as the natural law of ex- 
change between men of different nationalities, looks 
around for some consideration by which to commend 
charity in our judgment of those who so stoutly resist its 
introduction into the legislation of the nations. In this 
line of thought he comes to the conclusion, that though 
free trade is certainly for the greatest good of the whole, 
yet there are certain classes that are benefited by an ex- 
clusive system. We can not accept this conclusion. It 
may indeed be true that when the exclusive system has 
been long established, and trade has adjusted itself to 
it, there may be classes who would suffer by a return to 
the natural and healthful system of free trade. It is sel- 
dom possible to right a great wrong without hurting 
somebody. When the wrong was introduced many were 
most seriously and unnecessarily injured. During its 
existence, it is quite probable that persons may have so 
identified themselves with it, that their interests will suffer 
when it is removed. It is generally much better that 
such persons should suffer, than that a great wrong 
should not be righted. But we deny that any class can 
be permanently injured by substituting free trade for the mo- 
nopoly of protection. It would at first view seem, that the 
repeal of the English Corn Laws must have reduced the 
price of agricultural products, and therefore been injuri- 
ous to land-owners. And it is true that free trade has 
kept the price of wheat from rising while the population 
of the country has been immensely increased. But 
though the price of wheat has not advanced with that in- 
crease of population, rents have advanced. A smaller 
portion of the bread of the English people is grown on 
their own soil, but a much greater breadth of land is 



144 ECONOMICS. 

demanded for other products which cannot be brought 
from a distance, and which pay a higher rent than wheat 
can afford. The agricuUural interest of England has 
not been injured by the repeal of the Corn Laws. Conse- 
quent upon that great measure of British statesmanship, 
England has experienced an addition of one-fifth to her 
population, a vast enlargement in every department of 
her trade, and a vast accession to her wealth unprece- 
dented in any other portion of her history. In that 
increased prosperity her agriculture has shared. Facts 
prove that the selfish exclusiveness by which she sought 
to foster her agriculture was as unwise and suicidal as 
it was selfish and exclusive. Such must be the effect 
of free trade in every case. Every one's true interest 
lies, not in compelling his neighbor to receive from him 
what he could buy elsewhere more cheaply, but in pro- 
ducing that for the production of which he possesses 
greater advantages than any other producer. The high- 
est prosperity of a nation and of every body in it, of the 
world and all that dwell therein, requires that every man 
should be diligently seeking to pro-duce more cheaply 
than any one else can, something which is desired by the 
greatest possible number of consumers. In this direc- 
tion free trade turns- universal effort. Protection turns 
the effort of every man into the direction of compelling 
as many as possible to purchase his products whether 
for their interests or not. The former tends to universal 
honest thrift, the latter to equally universal dishonest 
sham. No fair-minded man, after carefully examining 
this subject in all its bearings will doubt, that the aban- 
donment, speedy and entire, of that system of legislation 
called protection, and the adoption of free trade in all 
our relations with the rest of the world, would procure 
for our country as great an increase of prosperity in every 
department of our industry, as England has experienced 
as the result of adopting a similar policy. 



PART III. 



DISTRIBUTION 



CHx\PTER I. • 

Preliminary Principles. 

§ io6. There seems at first thought to be room for 
a doubt, whether the two parts of our science which we 
have distinguished as Exchange and Distribution are 
really separated from each other by any clearly definable 
boundary. The one law of competition is alike universal 
and equally controlling in them both. It will be shown 
as we proceed that we can no more escape from it in 
dealing with the questions which Distribution presents, 
than with the questions of simple Exchange. A little 
reflection will however convince us, that they are sepa- 
rated by a distinct natural boundary, which ought not to 
be lost sight of In treating of Exchange, we have been 
considering the nature of value, the laws which regulate 
the exchange of one commodity for another, and the in- 
strument by which exchanges are facilitated. The dis- 
cussion of these subjects is complete in itself, and may 
be pursued to exhaustion, without involving any of the 
applications of the law of competition which remain yet 
to be considered. The question for how much a given 
commodity will be exchanged in the market may be de- 
7 



146 ECONOMICS. 

cided without involving any consideration of the methods 
by which its equivalent when received is to be divided 
among all the interests which M'ere concerned in produc- 
ing it. The former of these questions belongs to Ex- 
change^ the latter to Distribution. There are very few 
commodities which are the exclusive product of a single 
laborer. Even if some products seem at first thought 
to be so, a little consideration will generally show us 
that they are not. The laborer who seems to be alone 
concerned in it used tools, and those tools were produced 
by labor previously exerted. He was fed and clothed 
while he was engaged in the work. That also implied 
preexerted labor. The material on which he wrought 
had value when it came to his hand. When we pur- 
chase the product from the laborer who made it ready 
for our use, we must compensate him, not only for his 
immediate labor bestowed upon it, but for all this pre- 
exerted labor. Nor is even this all. He has paid and 
we must repay him for the rent of the land on which 
grew his food and the material of his clothing consumed 
while employed in that labor, and for the use of the cap- 
ital and for the oversight and labor concerned in its pro- 
duction. We cannot buy a pin or a button into the pro- 
duction of which all these things and many more have 
not entered. It may be that so small an article as a pin 
may have laid under contribution not only many trades 
and industries, but the remote continents and islands of 
the earth. All must be adjusted, each must have its 
share. To determine on what principles and by what 
laws this division is accomplished is the aim of this part 
of our science. 

/ Definition. Distribution is that part of Economics 
Iwhich explains the laws which prevail in assigning to each 
\ of the parties concerned in production their respective shares 
/ injhe result. 



PRELIMINARY PRINCIPLES. I47 

Great confusion and error in dealing with this class 
of subjects are constantly occasioned by not bearing in 
mind, that the questions with which we have to do are not 
ethical^ but purely economic. The laws which determine 
the several results are not moral, but natural laws, as far 
removed from the control of human wills as cohesion or 
electricity. The question is not how ought the proceeds 
of production to be shared ? but what are the natural 
laws which do and will determine the share of each ? 
just as in physical astronomy we inquire, not how the 
planets ought to move but how they do move in obedience 
to an irresistible force impressed upon them. Econom- 
ic questions are precisely analogous. We never can 
deal successfully with them unless we bea^: this in mind. 
The condition of the public mind on this class of ques- 
tions is to a great extent morbid, and demands a remedial 
treatment. We shall confer incalculable benefits on 
society, if we can succeed in convincing men, that natural 
laws control this class of questions, and not the caprices 
of human pride, selfishness and tyranny. 

§ 107. The principles already laid down are so pre- 
eminently important in this division of the subject, that 
we deem a little recapitulation desirable if not absolutely 
necessary. In no part of our science is the law of com- 
petition 7nore prevalent and more potejtt. It is our busi- 
ness to show how that law would divide, and when un- 
counteracted does divide the products of labor, and to 
point out those artificial devices by which this law is 
evaded, and temporarily, sometimes even for long periods, 
rendered inoperative. We have shown how this is ac- 
complished in relation to exchanges, and pointed out the 
disaterous consequences which result from it. If like 
violations of fundamental law exist also in this branch 
of our subject, it is equally our province to point them 
out, and indicate the remedy. Such attempts when- 



148 ECONOMICS. 

ever made can result in nothing but confusion and 
disaster. 

Let it also be borne in mind, that in our view all liv- 
ing Jmman beings are to be regarded as laborers. All at- 
tempts to divide human beings into two classes — laborers 
and not laborers — must fail and result in confusion of 
thought. The capitalist is a laborer, not less than he 
that plows the field, or works a steam engine. The 
artist, the poet, the student, the mother^ are all laborers. 
Infants in their cradles are laborers in prospect, and 
must be reared to take the place of others that are soon 
to pass away. The old and the decrepid are laborers 
that have done their work, and their support is a neces- 
sary charge on the world's industry. 

In the same manner all the accumulated results of 
labor are useful only to assist and sustain the labor that 
is now living. The attempt to divide wealth into that 
which is used to aid and sustain labor, and that which is 
used to gratify desire, can result in nothing but confusion. 
What is it to support labor "^ Is it to give to a human 
being, considered as a "mere working machine, just so 
much food and clothing and shelter as are absolutely 
necessary to keep the structure of bones and sinews and 
muscles in working order ? Does it not mean more than 
that ? To give him the means of living a social, an 
esthetic, a moral, a religious, a human life ? The life of 
a civilized, developed man ? Are not then all products 
which are employed in enabling human beings thus to 
live, the true and proper sustentation of labor ? If not 
how are we ever to draw the line between what is and 
what is not used for the support of labor? How are we 
ever to determine what portion of the expenditure of a 
man or of a community is applied to the support of pro- 
ductive labor_, and what portion of it is to be set down 
to the gratification of desire ? Is it not the simple truth 



PRELIMINARY PRINCIPLES. 149 

that the gratification of desire is the one only object of 
all labor, and that it is therefore in the nature of the case, 
the only possible reward of labor ? No man ever did or 
ever can draw a definite line between that which is em- 
ployed to gratify desire, and that which is the reward of 
labor. The distinction is not definite and therefore not 
scientific. 

Let us illustrate this by an example. Let us sup- 
pose that a man of great wealth sets aside one million 
dollars to build and decorate a palatial residence. This 
fund is no less employed in paying wages and furnishing 
helps to labor than before. The stone quarriers and 
stone hewers, the masons, the carpenters, the house dec- 
orators, the artists in painting and statuary will feel the 
stimulus of every dime of this capital just as before. 
Even after his palace is completed, he may rent it, and 
then it will be a part of his capital, as truly as though he 
had spent it in building a mill. Or he may use it for 
his own residence, and then its annual income will be a 
part of the wages of his own labor. Even that which he 
expends in clothing and decorating his person and the 
persons of his wife and children must equally be em- 
ployed in supporting labor, as truly as in the case of any 
other outlay. It is true that when it has been expended 
it will be capital no longer, but the same is true of the 
wages he has paid to the humblest laborer. It is true 
therefore that what this man expends for the gratification 
of desire is as truly employed in sustaining and helping 
labor, as any other portion of his wealth. He may even 
be an epicure and a gourmand, but his cook is as truly 
a laborer as his carpenter, and his cook-stove is as truly 
fixed capital as any of his steam engines. 

§ 108. This general account of the various interests 
to be provided for in Distribution seems at first view so 
complicated as to be incapable of being reduced to any 



150 ECONOMICS. 

general system. This however is merely in appearance. 
We must here recur to our general classification. All 
wealth is composed of two elejnents 07ily, Labor and Capi- 
tal. These only are concerned in all Production. Our 
problem is therefore reduced to this simple form — to 
show how the products of production are divided between 
the Labor and Capital concerned in any process. A two- 
fold division of the subject is therefore clearly indi- 
cated, viz. 

/. The share which falls to the laborer. 

II. The share which falls to the capitalist. 

We are aware that something must yet be said in 
justification of this classification, but we prefer to con- 
sider that subject in connection with land and rent, and 
therefore postpone the matter for the present. 



CHAPTER IL 

Wages Determined by Competition. 

§ 109. Definition. That share of the result of any 
productive process which falls to the laborer is called wages. 

The aspect under which this subject presents itself 
in those nations that have attained to the most advanced 
civilization is not the most favorable to an understand- 
ing of it, in its elementary principles. In the first rude 
beginnings of society, every man. is a laborer without 
capital. He must provide what is necessary to the sup- 
port of life, while he invents and fabricates his first sim- 
ple tool. When he has made that tool, he is its owner. 
He has become both a laborer and a capitalist. If he 
exchanges his products, he will demand compensation 



WAGES DETERMINED BY COMPETITION. 151 

both for his labor and his capital, in the price he will 
demand for his commodities, and so far as he can under 
the law of competition, he will obtain both wages and 
profit. He cannot arbitrarily and by his own will deter- 
mine either the one or the other. Even in these rude 
beginnings of the economic system, competition will assert 
its stern supremacy as a law of nature. As soon as the 
results of his labor, assisted by such tools as he can in- 
vent and fabricate, are more than sufficient to furnish 
necessaries, he can decide by his own will how much he 
will expend in the gratification of other desires than that 
of gain, and how much he will invest in improved tools to 
render his labor more productive. He is both a laborer 
and capitalist, and he can judge for himself what wages 
he will demand for that labor which he expends in the 
management of his capital. 

The greater the extent to which this condition of things can 
be perpetuated in the most advanced stages of civilization, the 
better it is for the individual and for society. It is always 
true that the laborer who works with his own tools and 
upon his own capital, will for that reason be more in- 
dustrious, more skillful and more frugal. The products 
resulting from such a natural combination of labor and 
capital will be more abundant and more excellent, be- 
cause the laborer is constantly stimulated by the consid- 
eration, that all which he produces is his own, to be dis- 
posed of according to his own will. The best economic 
system for every country and for the world is that in which, 
to the utmost possible extent, labor and capital are united 
in the same person. All political and social systems 
which tend to collect capital into few hands, and to re- 
duce the many to the condition of laborers without capi- 
tal, are impediments to the increase of the wealth and 
happiness of mankind. 

§ no. It is however inevitable that, to a greater or 



152 ECONOMICS. 

less extent in the progress of society, the laborer will be 
destitute of capital, and the capitalist will find the neces- 
sity of employing more labor than his own hands can 
perform, in order to put all his capital to use. Hence 
the relation of employer a7id employed becomes inevitable. 
As soon as this relation originates, the question of wages 
necessarily arises, and we are forced to discover and 
apply the natural laws on which its adjustment depends. 
7"his question has been growing in importance and in 
difficulty for generations. At present it is very obvious, 
that capitalists who employ laborers and laborers who 
work with other men's capital are engaged in a conflict 
with each other of which it is difficult to foresee the end. 
Violent passions and bitter antipathies have sprung up 
in the progress of this conflict, which unless the strife is 
terminated by a satisfactory adjustment, threaten anarchy 
and revolution. Only one mode of adjustment is in the 
nature of the case possible. The natural laws which pre- 
vail in this department must be ascertained and ex- 
pounded to the satisfaction of both parties. Such an 
understanding of these laws does not at the present time 
exist in either of the parties. If there is a science of 
wages, this is the time when it ought to be expounded. 

// is wrong to speak of this conflict^ as we are accustomed 
to do., as a conflict betiveen capital and labor! In this coun- 
try at least it is still true, that a very large portion of the 
labor is performed by men who own capital, and in all 
countries capitalists are laborers. The conflict is not 
between labor and capital, but betwee?i laborers who have 
no capital, and capitalists who have iteed of other labor than 
their ow?i, to utilize their capital. To avoid therefore 
any confusion of thought which might find its way into 
our discussion of this part of the subject, we shall use 
the word employer for the capitalist who hires laborers, 
and the word employe for the laborer who is hired to 



WAGES DETERMINED BY COMPETITION. 1 53 

work upon capital which belongs to another. This will 
locate the conflict precisely where it is, between employ- 
ers and employes. 

On the side of the employe it is assumed, that his 
wages are determined by the arbitrary, selfish and tyran- 
nical will of his employer, and that this is the reason 
why his portion is so scanty and inadequate to the com- 
fortable support of himself and his family. He is apt 
also to forget that the foundation of that fortune out of 
which comes the capital that furnishes him the employ- 
ment he has, was very probably laid in frugal self-denial 
quite as severe as that which he is obliged to practice. 
In such circumstances it is quite impossible that the two 
should meet each other on terms of friendship and con- 
fidence. The needle-woman for example, wearing away 
her life " stitch by stitch," in her miserable garret, be- 
lieves that she is the victim of her employer's grasping 
greed of gain, that the starvation allowance which she 
receives is dealt out to her by his arbitrary and tyranni- 
cal will. Nor is she alone in this opinion. Thousands 
who in a most commendable spirit of philanthropy com- 
passionate her sorrowful lot, unite with her in this severe 
condemnation of the greed of her employer. Oar litera- 
ture is full of such denunciation. The inquiry is there- 
fore one of great urgency, — Is there a law of wages? If 
so, what is it ? And what are the causes of the terrible 
suffering we often meet in the case of persons who are 
compelled to live on the wages of their labor? These 
are grave questions, and if our science can answer them, 
the world will acknowledge it as a benefactor. 

§ III. Wages are not controlled by the arbitrary will 
of the employer. The facts are not consistent with this 
supposition. It is true that some classes of laborers are 
in a condition as miserable as they could be, if it w^ere in 
the power of the most selfish of employers to dole out 

7* 



154 ECONOMICS. 

just such compensation as they pleased. But these 
cases of extreme suffering are exceptional, not normal. 
It will be shown also in the progress of this discussion 
that these exceptional cases are due to a violation of the 
natural laws which belong to the case, that there is a 
law of wages which, had it been allowed to have free 
course, would have prevented the mischief. There is 
abundant proof in the history of humanity, that if the 
arbitrary will of the employers could dictate wages, all 
employes would be in a condition the most abject. This 
is by no means the fact. It is true indeed that the agri- 
cultural laborers of England are in a very distressed con- 
dition, but those of many other countries are in a condi- 
tion of comfort and thrift. The condition of agricultural 
laborers in this country is so easy and advantageous, 
that many of them become rich land owners and cap- 
italists. The condition of employes generally, though 
in many cases not satisfactory, is by no means consistent 
with the supposition that wages are determined by the 
arbitrary will of employers. 

§ 1 1 2. There is positive proof that wages are determined^ 
even in such extreme cases as that of the needle-women al- 
luded to above^ by the law of competition^ and that neither 
employers nor eifiployed can escape from that law. 

Let us still further examine that case. There is a 
feeling rather than a conviction in many minds that the 
law of competition is stern, harsh and cruel, and ought not 
to be applied to such a case as this. If they should say 
what they think, they would address the employers of 
such women in some such language as the following. 
What if the market price has fallen to the starvation 
rates which you are paying these women 1 You ought to 
be ashamed to accept their services on such terms. 
What if this is all their work will bring in the market ? 
Why not do them simple justice by paying what their 



WAGES DETERMINED BY COMPETITION. I55 

work is really worth irrespective of competition ? This 
is very plausible, and seems to a great number of people 
entirely conclusive. Let us apply it to the case. 

How then shall we ascertain what is the real value of 
their work ? This is a question from which we cannot 
escape. No man can do justice till he knows what it is. 
Discarding competition therefore as inapplicable to the 
case, how shall we find the real value of any work ? Let 
us suppose that a report of the distresses of the needle- 
women in and around some great city has reached the 
ears of their employers, and deeply moved their com- 
passionate feelings. A meeting of employers in that 
trade is immediately called, to consider what can be 
done for the relief of all this suffering. They are honor- 
able men and wish to do justly and mercifully. They 
are quite convinced that the wages of these poor women 
are not sufficient to sustain life, and they have no heart 
to starve helpless women for gain. They agree at once, 
that as competition has brought down wages to this ruin- 
ous point, they will not apply it to the case any more, 
but pay the women what their work is worth irrespective 
of the market price. All unite in applauding this reso- 
lution. Justice, philanthropy, can ask no more. 

How then shall these noble men ascertam what the 
work is really worth ? But one method is possible in the 
very naticre of the case. It must be ascertained how 
much time will be occupied in making any garment, say 
a shirt. That question being settled, it must next be 
ascertained what it would cost a woman to live in com- 
fort during that time, and lay aside a little for days when 
she will be unable to work. How much must she pay 
for food, clothing, fuel, rent, and all other necessaries 
and such comforts as contribute to length of life and 
efficiency as a laborer ? Every one says this is right. 
How then is the question to be answered.? By the price 



156 ECONOMICS. 

current of course. We have no other means of answer- 
ing it, and every one knows that the price current is 
purely a product of competition. Thus while intending 
to emancipate themselves from the demon of competition, 
these men find that they are still in his grasp, and cannot 
proceed a step towards the accomplishment of their 
humane intention, except by following his lead. The 
attempt to escape from the law of competition in the 
economic world, is just as hopeless as the attempt to es- 
cape from gravitation in the material world. Its control 
is absolute, universal and unrelenting over every eco- 
nomic question. 

§ 113. But it may be said, that though these employ- 
ers cannot escape from competition, they can emancipate 
the poor needle-women from it, and fix their compensa- 
tion without reference to it. 

This attempt will succeed no better than the other. 
These employers are honest, earnest men, determined to 
do justice, and follow up the inquiry till they reach the 
result^ that in order that seamstresses may live by their 
work, the prices paid must be doubled. A new price- 
list is therefore made out on that basis, and made public. 
A joyful announcement is that to the starving needle- 
women. But no sooner is this great rise in the prices 
made known, than the number of applicants for work in 
that line is increased in a far greater ratio than the ad- 
vance in the price of the work. There are probably 
three or four — ^it would not be strange if there were ten 
women wdio would be glad to make shirts at a dollar 
apiece to every one that would make them at fifty cents 
apiece. These starving women have not escaped the 
crushing effect of competition, the direction from which 
it comes only is changed, it is more destructive than ever. 
Before it was a ruinous competition in price. Now it is 
a still more ruinous competition for any work at all. 



WAGES DETERMINED BY COMPETITION. 157 

Yesterday one was ruined by work at starvation prices. 
To-day she has no work at all^ being quite driven from 
the market by the application of a crowd of well-to-do 
women, whose condition is not necessitous, and who 
would not think of working at such prices as had been 
fixed by competition. 

The evil is still further augmented by a new competition 
which is su7'e to spring up in another quarter. The addi- 
tional cost of manufacturing must be added to the price 
at which the garment is offered to the customer. This 
must diminish the demand for the goods. Many women 
who have been accustomed to buy ready-made clothing 
for their families will now find the difference between 
the cost of the material and the cost of the ready-made 
garment to be so great, that they will make it themselves. 
The employers will therefore sell fewer garments, and 
have much less work for the needle-women to do. The 
employers, instead of benefiting their suffering employes 
by their well meant effort to protect them from competi- 
tion, have rendered their condition much worse than be- 
fore. They have tried to relieve them from the crushing 
effect of competition on price. They have raised up an 
army of new and powerful competitors for the work, and 
greatly diminished the amount of work to be done. 

Two inferences from this case are inevitable. First, 
That employers cannot benefit employes by arbitrarily raising 
•wages above the point at which competitio7i would fix them. 
Second, That every such efifort arbitrarily to raise wages 
fnust inflict serious injury 07i all those who are dependent 
on the occupation in qicestion for a living. Of this it would 
be easy to furnish innumerable illustrations. The one 
we have given above must suffice. It will be asked then 
— can nothing be done for such crushed and suffering 
employes as these distressed needle-women ? We answer, 
their employers as employers, can do nothing for them. 



158 ECONOMICS. 

Arbitrarily raising their wages will injure, not benefit 
them. Their employers have the same opportunity that 
all other persons have of relieving their sufferings by a 
generous Christian charity. There are other aspects 
however of this and like cases, which, though of great 
interest, are not relevant to our present point of inquiry. 
They will be considered in another place. 

§ 1 14. Wages are not therefore determined by the arbi- 
trary will of employers. The notion that they are so is a 
m.ischievous delusion. In a fair case, where competition 
has had free course, employers cannot raise them above 
the point determined by competition. Every attempt to 
do so will prove equally disastrous to employes and em- 
ployers. The sooner both parties know that they are 
bound by a law of nature from which they are alike pow- 
erless to escape, the wiser and happier they will be, and 
the more agreeable and comfortable their relations to 
each other. 

It should also be borne in mind, that the competition 
which determines wages (the amount of capital, being 
given, and on that supposition we have proceeded in all 
this chapter) is the competition of labor with labor, and 
not of labor with capital. It not only is not the arbitrary 
will of the employer that determines wages, but, so far 
as there is any will in the case, it is the will of the em- 
ploye. Wages settle at a certain minimum point because, 
in the conflict of competition employes select that point 
as their minimum. Circumstances are found to be such 
that those most anxious for employment prefer to make 
their stand at that point and risk being unemployed 
rather than bid lower on the one hand, and on the other 
they judge it to be better to accept what is offered than 
to incur the risk of failing of employment if they stand, 
out for more. This is the only will power that is con- 
cerned in fixing the minimum of wages. The employer 



WAGES DETERMINED BY COMPETITION. 1 59 

has a precisely similar will power in determining the 
maximum. As there is a point at which those most de- 
sirous of employment, will bid no lower, so there is a 
point at which those most anxious to obtain laborers will 
bid no higher. Between these extremes each party uses 
his own judgment as to what his interests require, and 
when an employer finds one who will consent to work 
for such wages as in the circumstances he judges it best 
to offer, a contract will be made. In no case can one 
will determine the question. A contract is always the 
coincidence of two wills. Competition is the force by 
which the coincidence of two opposing wills is brought 
about. 

Precisely here we must meet the question of combina- 
tion to resist competition. Why may not employes com- 
bine their wills into the will of one social personality, 
and by refusing to work except at such wages as that 
combined will prescribes, fix their own rate of compen- 
sation as high as they please "i On the other hand why 
may not employers combine and determine wages at as 
low a point as they please t It is true beyond a question 
that if the capitalist has more capital than he can use 
with his own hands, the surplus will be quite useless 
unless he can employ laborers. On the other hand it is 
equally obvious that laborers without capital must be 
employed by some one who has capital. Why then may 
not either party by combination determine wages by a 
social will ? This brings us face to face with one of the 
gravest questions of modern civilization. Our next 
chapter will be devoted to the consideration of it. 



l6o ECONOMICS. 



CHAPTER III. 



Wages as Affected by Combination. 

§ 115. Two classes of combiiiations require our atten- 
tion — combinations of those desirous of obtaining em- 
ployment entered into for the purpose of raising wages — 
and combinations of employers to reduce wages. " 

Before entering however upon the examination of 
particular combinations, it is proper to remark, that there 
are general considerations which reveal plainly enough the 
impracticability of all attanpts to control wages in this man- 
ner. The interests of the several persons or parties that 
enter into such a combination never can be the same. 
It may be better for one laborer to accept one rate of 
wages rather than run the risk of failing to get employ- 
ment. That rate may be to many others quite ruinous. 
If combination fixes on the higher rate, the man whose 
interests require him to accept the lower rate will feel 
that the combination works to his injury, and wish to es- 
cape from it. Others will be conscious that without the 
combination they could obtain higher wages than the 
combination demands. They will therefore be reluctant 
to enter into the combination, and impatient at being 
bound by it. The same difficulties will stand in the way 
of combinations among employers. This is the reason 
why such combinations are seldom of long continuance. 
They have within themselves natural antagonisms, which 
constantly tend to disruption. Individuals not artificial 
combinations are the natural units of the economic sys- 
tem. Individuality will assert itself. 

The statement of the case made at the conclusion of 
the last chapter shows clearly enough the impractica- 



WAGES AS AFFECTED BY COMBINATION. i6l 

bility of all such attempts. If on the one hand em- 
ployes can by combination and refusing to work except 
on their own terms, compel employers to accede to those 
terms, to save their capital from being useless, on the 
other hand it is equally in the power of capitalists by 
combination among themselves to compel their employes 
to accede to their terms, or submit to starvation. Com- 
bination on one side is very likely to provoke it on the 
other, and nothing can be expected from it but a dead 
lock, which will render capital and labor equally useless. 
Such a dead lock is too serious in its consequences to 
continue long, and will be likely to end in a willingness 
of both parties to submit the case to the natural working 
of competition. 

§ ii6. Combinations of labor against competition 
assume the form either of strikes or trades-unions. 

A strike is an agreement efitered iiito by employes, to de- 
mand certain prescribed terms, and to cease work tmtil those 
terms are acceded to by their employers. 

It is admitted that under certain conditions such an 
agreement may temporarily succeed in obtaining the 
wages demanded. If the occupation in which the strike 
occurs is one in which a degree of skill is requisite, such 
as can only be acquired by some instruction and practice, 
and if the combination can be made to embrace all the 
persons possessing that skill, that are within the reach 
of the employers, it is evident that the demands of the 
combination must be acceded to or work will cease. If 
the wages demanded are so high as to leave employers 
no prospect of any profit in continuing the work, it will 
stop, till either the employes recede from their demands, 
or other laborers can either acquire the skill, or be im- 
ported from abroad. In one or the other of these ways, 
the dead lock will in time be brought to an end, and the 
employes will fail of their object, after having inflicted 



1 62 ECONOMICS. 

much loss on their employers and brought on themselves 
a great deal of suffering. 

If the wages demanded are not so high as to leave em- 
ployers no margin of pi'ofit^ if it would still be better for 
them to accede to the demand than to stop work, they 
will be likely, for the time being, to do so. But it will 
hereafter be shown, that every mode of employing capital 
has its natural rate of profit, and that capital cannot be 
retained in any mode of investment, where that rate of 
profit cannot be realized. If therefore the wages de- 
manded in the case supposed are such as to reduce the 
rate of profit on capital employed in that industry below 
this natural standard, capital Vvdll be withdrawn from it 
and otherwise invested, the trade will languish, fewer 
laborers will be employed or demanded, and those al- 
ready employed in it will be compelled either to with- 
draw from it or recede from their demands. Thus wages 
will decline to the natural standard as determined by 
competition, and the strike will be ineffectual. It will 
be proved that a law of nature is too strong for human 
will-power, though strengthened by combination. 

There may be still .another case. It may be that 
when the strike took place wages had been reduced by a 
combination of employers to a rate which was really below 
the point which would have been fixed by free competition. 
In this case the employers will not be able to obtain 
workmen to take the place of the strikers, either by im- 
porting them from abroad or by training new ones. If 
therefore the employes are able to hold out for a time, 
their employers will accede to their demands, if they are 
not above the rates which would have been determined 
by competition. If their demands are above that rate, 
they will not be acceded to, except temporarily, till an 
adjustment can be made by capital withdrawing from the 
trade, and thus diminishing the demand for labor in it. 



WAGES AS AFFECTED BY COMBINATION. 1 63 

In none of these cases therefore can a combination of 
employes succeed, except in the single one in which it 
cooperates with competition instead of resisting it. The 
result of this whole discussion shows therefore conclu- 
sively, that employes are quite powerless to protect them- 
selves against the results of free competition by any com- 
bination among themselves. 

§ 117. Trades unio7is are combinations of laborers of 
another form and aiming at other objects besides the 
protection of their members against competition. So far 
as they are fraternal associations of artisans of the same 
trade, for the purpose of promoting friendly relations of 
sympathy and helpfulness, they lie entirely outside of the 
sphere of our science, and we have nothing to say of 
tliem here. They are however permanent organizations 
with established rules and regulations, and often propose 
not only to regulate the wages of their members, but to 
dictate to employers the methods in which their affairs must 
be conducted in 77iany other particulars. Especially they 
often attempt to confine the trade to a limited number of 
artisans, by refusing to work for any employer who re- 
ceives more, than a prescribed number of apprentices in 
proportion to the number of journeymen in his employ. 
Such organizations are ramified over whole nations, and 
it is said that some of them are not even confined by na- 
tional lines. It is obvious that if such an organization 
can succeed in attracting to itself and bringing under the 
control of its regulations all who have the skill of the 
trade, and preventing the accession of new members ex- 
cept in such limited numbers as its rules prescribe, cer- 
tain very important results must follow, which all good 
citizens would do well to consider. 

If a trades-union has the direct control of all arti- 
sans who are qualified to exercise their trade in a given 
country, the trade cannot be carried on except in accord- 



164 ECONOMICS. 

ance with its regulations. Employers in that trade must 
pay the prescribed rate of wages, or obtain no workmen. 
If after paying such wages as the union prescribes, the 
trade is not remunerative, owners must reimburse them- 
selves by exacting higher prices from the public for their 
products. These products the community must have, 
and must therefore pay the price demanded by the only 
men who have the skill to produce them. This is of 
course the assumption of an unlimited power of taxation 
of all other trades, and of the whole community. By 
limiting the number that can be instructed in the skill of 
the trade, they exclude many young men who desire to 
enter it, from sharing its profits, and compel them un- 
naturally to swell the stream of competition in other trades 
and occupations. In short they establish their trade as 
a perpetual monopoly. 

§ 118. Let us now inquire how such a scheme is likely 
to fare in the economic system of this modern world. It is 
evident that if one trade may build itself up into such a 
monopoly, so may any other. If the principle is admis- 
sible and practicable in one case, why not in another? 
Soon every trade may be a monopoly. Each may be a 
permanent society making its own regulations, prescrib- 
ing its own wages, and limiting its own numbers as 
narrowly as it pleases, each virtually dictating the price 
at which its commodities shall be sold, each thus exact- 
ing from every other, and each exacted upon by every 
other, and each losing vastly more by the exactions of all 
the rest, than it can possibly gain by its own. In such 
an order of things society would entirely lose its fraternal 
character, and be composed of many rival fraternities, 
each hostile to every other. This results from the very 
nature of a monopoly, whether created by legislative 
enactment or by voluntary association. Nothing is ad- 
justed by natural competition, every thing by hostile 



WAGES AS AFFECTED BY COMBINATION. 165 

exaction. Meanwhile a large portion of the community 
are incapable from the nature of their occupations ot 
organizing any monopoly at all, and are exposed to the 
exactions of all, without any possibility of self-defense or 
retaliation. 

We have seen the tendency of " Protection " to or- 
ganize every protected branch of industry into such a 
monopoly hostile to every other and to society at large. 
The only difference between that case and this is, that is 
a monopoly created and sustained by legislation ; this is 
an attempt to establish a monopoly without the aid of 
government. In principle and aim the two cases are 
exactly alike. Their common object is to protect their 
industry from the beneficent natural law of competition. 
It is, we think, obvious enough, that if such a system of 
ideas can be carried out in practice, either in the one 
case or the other, the civilized nations of modern Chris- 
tendom are threatened with very serious disaster. Can 
the attempt succeed ? 

§ 119. T/ie ultimate and general success of such schemes 
in an age of freedom and intelligence is ijjipossible. Such 
ideas have prevailed and been put in practice in the past 
ages of European civilization, to an extent of which the 
men of the present time have very little conception. Till 
a comparatively recent period, even in England, every 
trade was a monopoly sanctioned and_encouraged by the 
government. But the time of such legislation has gone 
by forever, or at least till the Dark Ages return upon the 
world again. 

In the present conditions of society, it is impossible 
for such an association to attract to itself all the 7vork7nen 
who possess the .skill of the trade. Many will have the 
good sense to prefer the chances of success under free- 
dom and natural competition. This is true as a matter 
of fact. Such workmen will be favored and encouraged 



1 66 ECONOMICS. 

by employers, and find their own advantage in their 
independent position. The trades-unions will not 
therefore be able to obtain the monopoly of the trades. 
They will equally fail in their efforts to limit the number 
who can acquire the skill of the respective trades. Arti- 
sans who are not attached to any union will freely in- 
struct young men wishing to acquire the skill of any 
trade, and their numbers will be indefinitely multiplied. 
For the same reasons which were given in connection 
with the strikes, they will not be able to resist compe- 
tition in determining the wage's of their own labor. They 
can permanently succeed under the same conditions and 
only under the same conditions as strikes, that is when 
there is an abnormal condition of things in which wages 
are lower than the rate at which competition will fix 
them, so that competition itself will co-operate with their 
efforts to raise the rate. 

§120. There is another insuperable obstacle to the success 
of any combination to raise wages above the standard of 
competition. Grant that by such combinations they may 
take the question of wages into their own hands, and 
appropriate to themselves just so much of the gains of 
production as they choose, the consequence will be, that 
capital will cease to be accumulated, because it will cease 
to be of any benefit to its owner. If capitalists discover 
that nothing can be gained by accumulating, that labor- 
ers really own all that is accumulated, they will not save 
for the barren purpose of calling it their own. Laborers 
will soon discover that they have killed the hen that laid 
the golden eggs, that by refusing to capital its proper 
share of the gains of production, they have annihilated 
that by which their labor was supported and assisted. 
Our country is at the present moment abounding in sor- 
rowful proofs of the truth of this assertion. A very few 
years ago, at a time when wages were higher than at any 



WAGES AFFECTED BY COM]]INATION. 1 67 

former periods of our history, the daily papers were filled 
with reports of the strikes of employes in almost all the 
leading branches of trade, clamorously demanding more 
wages and often with additional details of violence 
offered to laborers who still chose to work, and of the 
reckless destruction of the property of their employers. 
At this time our doors are almost besieged by tramps, tell- 
ing the pitiful story of being out of employment, and beg- 
ging for a piece of bread to save them from imminent 
starvation. Who has told us or can tell us how much of 
the present destitution is due to the fact, that by the strikes 
of those years of extravagance, employers were induced, by 
the pressure of present seeming necessity, to pay wages 
which they could not afford, and as a consequence have 
now no capital with which to pay any wages or employ any 
laborers ? As from day to day we are feeding these poor 
wretches, we are much reminded of those years of the 
arrogant extravagance of laborers. One extreme follows 
another. Laborers about to engage in a strike should 
think of the fable of the hen that laid golden eggs. 

§ 121. It remains to mquire whether employers can, by 
combijiaf ion, reduce wages below the standard of competition. 
This part of the subject may be disposed of in very few 
words. It is never more than a very small portion of 
the capital of the world or even of a single country that 
can be brought into any such combination. Let us take 
as an illustration the great coal monopolies of Pennsyl- 
vania. Those great companies can and do combine for 
certain purposes which are injurious enough to the gen- 
eral welfare. But they have little prospect of success in 
any effort they may make to reduce wages below the 
market rate. The demand for labor in the United States 
is so great, that that portion of it which is represented by 
these companies is, in comparison with the whole, quite 
insignificant. The coal fields of the whole country are 



1 68 ECONOMICS. 

SO extensive, that those of Pennsylvania are relatively 
too small to exert any appreciable influence on the de- 
mand for labor. If the miners employed by those com- 
panies do not emigrate to other fields, rather than work 
for wages that are below the market, the fault must be 
in their own stupidity and folly. In a great free country 
like this the laborer who remains under any such at- 
tempted oppression has small claim on public sympathy. 

// is ahvays necessary to the success of any combination 
of capital, that it should have the reputation of paying fair 
wages to its employes. Otherwise its interests will greatly 
suffer from the difficulty of obtaining a sufficient supply 
of competent laborers. Of this our great competing 
lines of railways afford a striking illustration. For cer- 
tain purposes they manifest a disposition to combine for 
the purpose of resisting competition on the most gigantic 
scale. But they have little power to reduce the wages 
of their employes below the standard of competition. 
Not one of them would dare to let the impression go 
abroad, that their employes are less liberally rewarded 
than those employed in other branches of industry. 

All the conclusions of this chapter might be confirmed 
by an appeal to facts. Multitudes still cling to the belief 
that the law of competition can be resisted by combina- 
tion of human wills. New combinations are formed from 
time to time and some of them obtain a temporary suc- 
cess. But it is only temporary, they soon fall to pieces, 
and the stream of wages settles back into the well-worn 
channels of competition. Were the history faithfully 
written of all the efforts of this sort which have disturbed 
the quiet of the economic world within the last fifty 
vears, we think it would convince any candid mind of 
the impracticability of ever adjusting matters between 
employers and their employes by any such methods. 
The conflict never can be terminated, except by an 



WAGES AFFECTED BY COMBINATION. 1 69 

appeal to some established and recognized natural law. 
We admit that in peculiar circumstances that law has 
sometimes produced results which are far from satisfac- 
tory. But it will be shown in the progress of this trea- 
tise, that those results are not due to competition pure 
and simple, but to vicious social or political arrange- 
ments which have turned aside competition from its 
natural and legitimate course. 

§ 122. In all that has been said in this chapter of 
combinations against competition, it has been presumed 
that, in the efforts of either party to dictate terms to the 
other, peaceable means only will be used. As in this con- 
flict physical force is always on the side of the employes, 
they only are for the most part under any temptation to 
resort to unlawful means. If they not only refuse to 
work except on terms of their own dictating, but resort 
to violence, to hinder other laborers coming in and ac- 
cepting employment in their places, and in destroying 
the property of their employers^ the thing will then have 
passed out of the sphere of science, and we must look 
upon it as we do upon any other insurrection against the 
supremacy of the laws, and the peace of society. The 
government should suppress any such outbreak of vio- 
lence with the utmost promptness and rigor. It is the 
foremost duty which the government owes to the eco- 
nomic interests of the people. That any man is at lib- 
erty to judge for himself what wages he will demand, or 
whether he will work at all, all admit, and the govern- 
ment will protect every one in the exercise of that right. 
But the employer owns his capital, as truly as the em- 
ploye owns his labor, and will judge for himself what 
wages it is expedient for him to pay, and whether in 
given circumstances he will run his machinery or allow 
it to stand idle. If one laborer will not accede to his 
terms, he may employ another that will. If this matter 
8 



170 



ECONOMICS. 



is to be carried through by force on either side, there is 
nothing for the community but revolution, anarchy, the 
annihilation of capital, the cessation of productive in- 
dustry, and the extreme distress of all classes. It must 
however be borne in mind that if one party resorts to 
violence the other party must appeal to that force which 
the government knows how to wield for protection. 



CHAPTER IV. 
Variation of the Rate of Wages. 

§ 123. In the two preceding chapters we have shown 
that competition is always a controlling force i7i determin- 
ing wages, and that it cannot be permanently resisted by 
any possible combination of human will-power, whether 
on the side of employers or of the employed. But com- 
petition is not a blind force. It acts through rational 
minds and free wills. It does not therefore come to the 
same result in all cases, but its determinations are as 
various as the circumstances and conditions in view of 
which it is called to act. The rate of wages fixed by 
competition is not the same in different places at the 
same time, or in the same place at different times. The 
wages of different persons vary widely from each other, as 
well as the wages of different occupations. 

It is our object in this chapter to point out the lead- 
ing causes of these variations of the rate of wages, and to 
show that they all result from the law of competition 
applied to a great variety of circumstances and condi- 
tions. 

§ 124. The first cause of variation which we shall 



VARIATION OF THE RATE OF WAGES. 171 

mention is the changing I'atio between the member of labor- 
ers without capital seeking employment^ and the amoimt of 
capital dependent for its productiveness on hi?'ed labor. It 
is common to state this case in another form, to say that 
the wages of labor are dependent on the ratio of the 
number of laborers to the amount of capital. This is 
not accurate. All that capital M^hich is kept employed by 
the personal labor of those that own it, and all the labor- 
ers who work with their own capital are to be left out of 
the account as having no influence on the rate of wages. 
If all capital were employed by the labor of its owners, 
and all laborers used their own capital, there could be 
no wages, however great the amount of labor and capital 
might be. Bearing this limitation in mind, it is plain 
that the rate of wages is a function of two variables — 
labor and capital. 

The amount of labor remaining the same, any increase 
in the amount of capital employing labor must necessai'ily 
increase the de7?iand for laborers. A man who has only 
capital enough to aid and sustain his own labor can hire 
no laborers unless he is willing to be idle himself. He 
who has enough for two laborers will wish to employ 
one, and so often as he adds to his capital a sufficient 
amount to fit out another laborer, he will demand an- 
other. This holds universally. Other things being 
equal, the more capital any one has the more laborers he 
will demand. The same will be true of all capitalists 
who own more capital than they can employ with their 
own hands. It is true that some modes of employing 
labor require a much greater amount of capital to each 
laborer than others. In the statements just made we 
must be understood to mean by the amount of capital 
necessary to fit out a laborer, the average amount to each 
laborer, taking all the different modes of employing labor 
into the account. With this understanding of the Ian- 



172 ECONOMICS. 

guage just used, it is strictly true that the demand for 
labor varies directly as the amount of capital dependent 
for being utilized on hired labor. Wages will therefore 
vary in the same ratio. The greater the amount of such 
capital in the market, the more will its owners bid against 
each other for laborers^ and the higher the point to which 
wages will be raised. If in a free and prosperous com- 
munity wages are very high, it is an indication that the 
amount of capital seeking to employ laborers is very 
great in proportion to the number of laborers that can be 
employed. The rapid increase of the wealth of employ- 
ers by legitimate production implies a corresponding in- 
crease in the wages of those whom they employ. 

On the other hand, by an exactly similar mode of 
reasoning it would be made apparent that, the amount 
of capital dependent for its utilization on hiring labor 
remaining constant, if the number of laboi'ers without capi- 
tal is increased^ wages will decline. The demand for em- 
ployment will outrun the supply, laborers will bid against 
each other under the apprehension of being unemployed, 
and employers will obtain the labor they need at lower 
rates. If this state of things continues for a course of 
years or for generations, the condition of the laborer will 
become worse and worse, and pauperism and starvation 
will be unavoidable. Many writers on the subject have 
come to the sorrowful conclusion, that this is the inevita- 
ble fate of the laborer in countries of dense population. 
We hope to show in another part of this treatise, that if 
economic laws are observed, such apprehensions are as 
groundless as they are gloomy. 

§ 125. If -both the amount of capital seeking to hire 
laborers, and the number of laborers seeking employment 
are variable, then the wages of labor will depend on the 
ratio which these variables sustain to each other. If the 
capital increases more rapidly than the number of labor- 



VARIATION OF THE RATE OF WAGES. 1 73 

ers, wages will be constantly advancing j but if the num- 
ber of laborers seeking employment increases more 
rapidly than the capital, wages must with equal constancy 
decline. In this law we find an explanation of the ex- 
ceedingly low wages paid in India and some other coun- 
tries of very dense population. Population has increased 
because the cost of the necessaries of life is in that cli- 
mate very small. On the other hand the government 
of the country has been arbitrary and despotic, and the 
rights of property have never been protected. The pres- 
ent condition of the country presents all the phenomena 
of an exceedingly dense population with vast numbers of 
men who depend on employment for their daily bread, 
yet little capital has been accumulated. 

The dependence of wages on the ratio of the number 
of laborers seeking employment to the amount of capital 
dependent for its utilization on hired labor is one of the 
most important principles of our science. It shows con- 
clusively, that the impression so comvi07ily entertained^ that 
employ ei^s and employes are natural enemies to each other ^ is 
entirely without foundatio7t. If employers prosper by 
legitimate production, their demand for laborers will be 
increased, and the law of wages is such as to insure to 
laborers a share in that prosperity. The employer will 
have demand for more laborers, and will be compelled 
to offer them more favorable terms in order to obtain 
them, and, for long periods and in the general course of 
trade, employers can escape from this necessity by no 
combinations. On the other hand, if the employer fails 
to receive his profits he will have no increased demand 
for labor, he will soon find no motive to continue the 
processes of production, he will seek out more profitable 
methods of employing his capital, and the laborers he 
has employed will be out of employment. It is always 
in some degree difficult for the employe to appreciate his 



174 . ECONOMICS. 

relation to the capital that employs him. His employer 
is a wealthy man, and enjoys those comforts and elegan- 
cies of life which wealth can purchase. His employes 
are often in straightened circumstances, and from neces- 
sity lead frugal lives, denying themselves many of the 
comforts which their employer enjoys. They are apt to 
forget, that the foundation of that very fortune which 
furnishes them employment, was probably laid in the prac- 
tice of just such frugal self-government as that in which 
they are living ; that if their employer or some ancestor 
of his had not practiced just such self-government, the 
capital which now helps and sustains their labor would 
never have had any existence. Capital a,nd labor, em- 
ployers and employes are not natural enemies, with in- 
terests antagonistic to each other, but fellow laborers for 
a common end. So this relation will be regarded by 
both parties, whenever the principles of our science are 
generally understood and accepted. 

§ 126. Another cause which creates variation of the 
rate of wages is the use of labor-savi7ig machine7'y. It is 
obvious this must be one of the elements of the problem. 
No one introduces a machine or even a simple tool into 
any industrial process, except for the purpose of accom- 
plishing the end aimed at by a diminished amount of 
labor. An instrument that will not accomplish this is 
not labor-saving, and will therefore never be used at all. 
The first effect therefore in all cases of introducing labor- 
saving machinery must be, that a given end is attained 
with a less outlay of labor. Our first thought might be, 
that this settles the whole question, and that the use of 
labor-saving machinery must diminish the demand for 
labor and reduce the rate of wages. But this will be 
found to be a very superficial and deceptive view of the 
subject. No one indeed will deny that machinery en- 
ables a man to attain a given end with less labor ; and 



VARIATION OF THE RATE OF WAGES. 1 75 

could the inventor of the machine keep his own secret 
and confine the use of it to himself alone, he might be 
able to sell his products without any reduction of price, 
and in such increased quantity as to supply the whole 
demand, and drive all other labor and capital from the 
trade. In that case he might greatly diminish the de- 
mand for labor in that trade without increasing it in any 
other trade. 

But such a secret cannot be kept, and the inventor, 
well aware of that fact, will be easily induced by the 
grant of a patent right, to communicate his secret to the 
public. As soon as this is done, competition in the 
trade will speedily approximate its profits to the general 
level, and the result will be a reduction of the price of 
the commodity whose cost is affected by the machine, 
nearly in proportion to the diminished amount of labor 
necessary to produce it. Such a reduction in the price 
of the commodity will produce a vast increase of the de- 
mand, resulting from the fact that great multitudes now 
use it, who at the former price were quite unable to 
afford it. In the course of the past century many com- 
modities which at the beginning of the period were con- 
fined to the palaces of the rich, have found their way to 
the humble dwellings of the sons of toil. By this pro- 
cess, in the case of most really valuable labor-saving ma- 
chines, the increased demand for the commodity has 
very far more than balanced the saving of labor in its 
production, and in the ultimate result hnmensely increased 
the demand for labor in that very department. Perhaps 
no better illustration can be found than the art of print- 
ing. To say nothing of printing itself, the demand for 
labor in manufacturing printing paper exceeds beyond 
all comparison the whole demand for labor in the book 
trade which could have existed, if the art of printing had 
not been invented. The history of labor-saving inven- 



176 ECONOMICS. 

tion furnishes many other examples of the same ten- 
dency, which are equally pertinent and equally striking. 
A careful examination of the facts of history would un- 
doubtedly justify the conclusion, that the use of labor- 
saving machinery has immensely increased the demand 
for labor, in the very departments of industry where it 
has been most employed. We have tried in vain to call 
to mind a single instance of a successful machine which 
has come into general use without producing this effect. 
We once thought the sewing-machine would prove an 
exception to the general rule. But whoever calls to mind 
the elaborate workmanship of ladies' apparel, which has 
come into use along with the sewing-machine, and we 
think as a consequence of it, will be convinced that it is 
DO exception to the rule. 

Exceptions there may be in particular establishments, 
or within very narrow limits. Mr. Fawcett furnishes a 
few particular cases of the sort. But none of them have 
any tendency to invalidate the general principle. No 
principle of the science is, we think, established on a 
firmer basis. Considering the influence of machinery in 
increasing the demand for labor, it is in that view alone 
one of the laborer's best friends. 

§ 127. A certain class of writers in this country, more 
distinguished by an amiable philanthropy, than by any 
clear philosophic insight, have taken a very different 
view of this matter. Seeing that all labor-saving ma- 
chinery does diminish the amount of living human labor 
necessary to the accomplishment of a given result, they 
indulge the expectation that labor-saving invention will 
be carried to such an extent, as to dispense with the 
necessity of a large portion of the human effort which 
has hitherto been necessary for the supply of human 
want. Hence they indulge in a dream of a coming mil- 
lennium of human labor, in which no part of the human 



VARIATION OF THE RATE OF WAGES. 177 

race will be under a necessity of putting forth more effort 
than would be really necessary for the preservation of 
health and the full vigor of the human constitution. In 
that good time which they dream is coming, they antici- 
pate that the chief occupation of all persons will be the 
cultivation of the intellect, and the enjoyment of the 
pleasures of high art. The sentence pronounced on our 
first ancestor, — " by the sweat of thy face shalt thou eat 
thy bread " — they think is to be repealed in that happy 
age of labor-saving invention. 

Such persons have certainly mistaken the results 
v/hich the improvement of machinery is to produce in 
the future of this world. It has always shown a tendency 
to increase rather than dhfiinish the de77iand for htimajt 
labor. In a former part of this treatise it has been shown, 
that in order that men may feel the full stimulus to labor 
which is provided in the constitution of man, it is neces- 
sary that all portions of society should enjoy not only the 
necessaries of bare existence, but such comforts and con- 
veniences as constitute a truly civilized life. It is by 
means of labor-saving invention, if at all, that this result 
is to be achieved. It is by this means that the civilizing 
influences of society are to be so quickened and extended, 
as to reach men of every grade and condition. In order 
to the attainment of this result, men are not to lead aim- 
less and purposeless lives in the enjoyment of the pleas- 
ures of the appetite and the tastes, but lives of activity 
and energy, in so multiplying the comforts and beauties 
of life that all may share them. The age of machinery 
is not to dispense with human toil, but to render the suc- 
cess of human effort possible, we would fondly hope 
actual, in providing for universal well-being. The des- 
tiny of the race is not by labor to dispense with the 
necessity of labor, but by labor to attain the appropriate 
end of all labor, a civilized humanity. 
8* 



178 ECONOMICS. 

§ 128. The principles just explained do not seem to he 
applicable to any great extent to agricultural maclmiery. It 
was shown in a former part of this treatise that agricul- 
tural machinery has not thus far proved to be, to any 
considerable extent, labor-saving. Reasons were also 
assigned for believing, that the same must for the most 
part be true in all the future. Should the opinions there 
expressed stand the test of future experience, as they cer- 
tainly do of the past, machinery never can have much influ- 
ence on the demand for labor in that department. Even 
if machinery should yet be invented to reduce the amount 
of human labor requisite for conducting agricultural pro- 
cesses in the same ratio in which it has been reduced in 
manufactures, it would still remain true, that the influence 
exerted on the price of agricultural products would be 
very much less than it has been in the case of manufac- 
tured goods. The price of agricultural products must 
always depend very largely either on the rent of land, or 
the cost of transportation. These elements of cost would 
both remain, however much the labor requisite might be 
diminished by machinery. If then such inventions are 
ever made, it will be a case in which labor-saving inven- 
tion diminishes on the one hand the demand for labor, 
and on the other hand brings little compensation in the 
cheapness of the product. We have given our reasons 
for believing that it is very improbable any such thing 
can ever occur. Even if it does occur, the truth will 
still remain unimpaired, that the tendency of labor-saving 
invention on the whole is, not to diminish^ but greatly to 
increase the demand for labor. The conclusions of the 
two previous sections will not therefore be invalidated. 

§ 129. Another cause which produces variation of 
the rate of wages is the cost of living. It is customary to 
say, the cost of food, or the cost of the necessaries of 
life. We object to this as inaccurate. It implies the 



VARIATION OF THE RATE OF WAGES. 1 79 

assumption that the rate of wages is to press downward, 
till finally at the maturity of the process, a bare existence 
is all that is to jDe left to the laborer. This is not the 
necessary nor is it to be the ultimate effect of compe- 
tition. Neither is this an accurate statement of the case. 
It is not mere increased costliness of food or of the neces- 
saries of life that raises wages. It is the cost of living. 
We are aware that there are large classes of laborers in 
many countries, whose wages are so low as to place their 
whole lives on the very verge of starvation. But it is yet 
to be shown in a subsequent chapter, that this is not the 
result of any natural law, but of a violation of natural 
law. 

Neither is it true that wages do ifi fact depend only on 
the cost of necessaries. It has previously been noticed 
that the minimum of wages is always determined by the 
fact that those most anxious for employment prefer to 
run the risk of being- unemployed, rather than make a 
lower bid. In determining the point at which such a 
stand is to be made, any man who has before his mind a 
standard of living in some degree of comfort would take 
into the account not only what it would cost him and 
those dependent on him to escape starvation, but what 
it would cost him to live according to his conception of 
life. If he finds that in a given position no wages are 
offered which will enable him to support such a mode of 
life, he will change his position, he will seek some new 
employment, he will emigrate if need be, in order to find 
some position in which he can earn a living. In the 
present condition of the world, and with present facilities 
of locomotion, no laboring population will quietly remain 
where they must work at starvation prices, unless they 
have been reduced to utter despondency by generations of ex- 
perience in hopeless poverty. Such a population may from 
sheer ignorance, stupidity and despondency, accept as a 



l8o ECONOMICS. 

remuneration for their labor the naked boon of continued 
existence ; no other will. We shall show hereafter that 
such a compeiisation is not in the sense of our science^ wages. 
It is not the result of competition. The economic condi- 
tions of such a life differ very little^from those of slavery. 
It is noticeable in respect to all those populations in what- 
ever country that live in this abject condition, that they 
have very little voice in determining their own wages. 
Their employers have it all their own way, and when 
they find that the wages which their laborers receive are 
not adequate to save them from starvation, the employers 
themselves yield to necessity and pay higher wages. 

It is therefore true that in all cases in which wages 
are really determined by competition, it is the cost of liv- 
ing and not the cost of mere necessaries that influences the 
rate of wages. If it is not possible by equitable legisla- 
tion and a sound and healthy intellectual and moral 
training of a people, to secure such conditions of society 
that all wages will be thus determined, the outlook to- 
ward the future of the civilized world is gloomy enough. 
We shall have occasion to return to this subject in a 
subsequent chapter. 



CHAPTER V. 



Causes of the Variation of Wages for Particular 
Persons and Classes. 

§ 130. The last chapter was devoted to the consid- 
eration of the general causes which are liable to produce 
variations of wages. The wages however received by 
one person or one class of persons are found to differ 
very greatly from those of another. It is desirable be- 



CAUSES OF VARIATION OF WAGES. l8l 

fore we dismiss the subject of wages, to point out some 
of the leading causes. 

One of the most important of these causes is the diver- 
sity of men's natural gifts. There are some products of 
human effort which are held in the highest esteem by all 
civilized men, the power to produce which is possessed 
by very few human beings, and consequently the products 
themselves are always rare. The men possessing those 
rare endowments are able to demand wages that are 
limited only by the desire which men have for these 
peculiar products, and the wealth of the community. 
Most of the works of genius are to a greater or less ex- 
tent embraced in this class, and are liable in favorable 
circumstances to command prices which seem almost 
fabulous. 

To the same class are to be referred the extraordi?iary 
profits sometimes realized by men of great eminence in the 
professions. It is because their abilities are so rare as to 
place them quite above the reach of competition. They 
have the glorious gift of genius of which they have a 
natural and god-given monopoly. Their services in 
cases involving vast amounts of property, or the life and 
health of persons possessing great estates, are esteemed 
so valuable, that men will pay almost any price for them, 
rather than not obtain the advantage of them. We are 
economists, not moralists, and therefore have nothing to 
say of the moral responsibility of such men. They enjoy 
a precious gift of the Creator, and if they use it wisely, 
it is a glorious life they live. 

§ 131. Wages are higher in proportion to the expense 
of time and money that must be expended in acquirijig the 
skill requisite for performing services of which they are 
the reward. Much labor requires no peculiar educa- 
tion at all. But there are occupations the labors of 
which cannot be successfully performed without an ex- 



l82 ECONOMICS. 

pensive education for the business. Such labor must be 
more highly compensated than that which requires no 
such preparatory outlay. If any community refuses to 
pay such superior compensation, if one can get no re- 
muneration for the capital expended in acquiring such 
an education, no one will be at the expense of acquiring 
it, and the community will soon have to live without 
educated labor. That which will bring nothing in ex- 
change will, we have seen, soon cease to be produced. 

The degree of that compensation will depend directly 
on the perfection and rarity of the skill acquired and brought 
into use. If for example the medical profession should 
fail to give evidence of any decided superiority in the 
treatment of disease, over the quack, or a mere nurse, 
people would be willing to pay very little for professional 
skill. But the physician who acquires a wide reputation 
for eminent skill in administering remedies for the mala- 
dies to which men are liable, will find an enlightened 
public willing to give him a liberal reward for his services. 
The principle holds here as everywhere else, that the 
greater any man's superiority in any kind of labor to the" 
rest of the community, the higher the wages he can de- 
mand for his labor, and the more other men can afford 
to give him. The skilled laborer has therefore the 
greatest possible inducement to bring his skill to the 
highest perfection, and what is for his interest is equally 
for the interest of the whole community. Men are often 
envious of one who acquires a reputation for skill, by 
which he is able to command very large compensation 
for his services. This is illiberal and inconsiderate. 
The only reason why one can command such compensa- 
tion is, that men find that his services are still cheap, 
even at the price he demands for them. 

§ 132. Another cause of wide variation in the rate 
of wages is found in the amount of confidence reposed. 



CAUSES OF VARIATION OF WAGES. 183 

Services are often demanded in positions in which not 
only eminent professional or mechanical skill is requisite, 
but wisdom, sagacity, soundness of judgment in estimat- 
ing men's characters, and a power of controlling their 
passions and directing their wills, and above all unques- 
tionable moral integrity are not only important but even 
indispensable. Just in proportion as such qualities are 
regarded as desirable in any position, and as the union 
of them all is rarely found in one person, the man who 
possesses such a combination of traits will command 
higher wages than other men. The world is not so bad 
in any civilized country, that eminent wisdom and high 
moral integrity are without value in the market. 

It is however true that many positions in which such 
qualities are esteemed indispensable confer so muck dig- 
nity and ko7tor on those who occupy them, and give such ad- 
vantages of social J>ositio7t, that men are willing to accept 
them at a lower rate of compensation than they could 
command in less honored situations. For example, men 
of the highest legal attainments and personal reputation 
will often consent to occupy a position on the judge's 
bench for a salary much smaller than the income they 
might expect to receive at the bar. This consideration 
explains the comparatively low salaries received by some 
men of great eminence. The reverence and affectionate 
homage of mankind is more desirable to an honorable 
and generous mind than money. 

§ ^2>Z' There are numerous causes affectiiig in 77ta7iy 
subtle ways the wages of differe7tt persons and classes, which 
it is neither possible or desirable to particularize. One 
of them is the uncertainty of success in any occupation. 
Men will encounter that uncertainty only because they 
see the prospect of proportionally higher wages in case 
of success. The wages of those who do succeed must 
be high enough to compensate for the lost labor of those 



184 ECONOMICS. 

who fail. Constancy or inconstancy of employment in- 
fluences wages. If" employment is irregular or uncertain 
men must be paid for the time they are obliged to spend 
in waiting for work. The ease or difficulty of the labor, 
the pleasantness or disagreeableness of the occupation, 
have a good deal of influence on wages. Even the dis- 
gracefulness of an occupation is sometimes the reason 
why it commands large pay. Men must be well paid 
for doing dirty work. We think in the present state of 
public opinion in this country, no one would engage in the 
liquor traffic, who did not expect to realize large gains. 

§ 134. There are certain occupations which are of such 
a character that large classes of persons are disposed to en- 
gage in them, whose constitutions, tastes, habits and educa- 
tion disqualify them for most other avocations. Of course 
competition in these occupations is very strong, and 
wages are proportionally low. If one-half of the human 
race were without eyesight, and there were a few occupa- 
tions in which blind men could succeed, the competition 
for these employments would be exceedingly strong. 
They would become exclusively employments for the 
blind, for wages would sink to so low a point, that a 
comfortable living could not be obtained from them. 
This is in principle precisely the case of the suffering 
needle-women alluded to in a former chapter. It is in 
place here to resume, as we promised to do, the consid- 
eration of their case, and we shall find it a very instruct- 
ive one. The causes that produce the starvation prices 
at which seamstresses are often compelled to work, do 
not at once meet the eye of the public. There are large 
classes of persons in every civilized community, who 
never enter into that general competition by which wages 
are determined. The competi/ig unit is to a great extent, not 
the individual, but the family. The male head of the 
family is responsible for the support of all its members, 



CAUSES OF VARIATION OF WAGES, 1 85 

and buffets the wild waves of competition for them all 
by his single personal power and will. The women of 
such families enjoy a sheltered existence, protected from 
many of the storms that beat on all the out-door world. 
Yet there are large and increasing numbers of women 
who are not thus protected, and are obliged to engage 
single-handed in the rude struggle for existence which 
we call competition. They naturally seek those occupa- 
tions which do least violence to female tastes and habits, 
and are most suitable to the delicacy of female fingers. 
The needle is apt to be a favorite resort, and their com- 
petition is very largely thrown upon the employment of 
the seamstress. The consequence is inevitable, ruinously 
low wages. 

But the evil stops not here. In those peaceful homes 
where so many women are passing their tranquil lives, 
there are many who are painfully conscious of the lack 
of sufficient employment. They would rather earn some- 
thing in almost any agreeable employment, than live in 
idleness and earn nothing. It is not necessary for them 
to do anything for their own support, their living is se- 
cure. But they would like to be a little independent in 
their spending money. They are therefore glad to take 
in sewing, even at the lowest prices, to employ their un- 
employed hours, and therefore enter into direct competi- 
tion with all other women that earn money with their 
needles. Women whose life depejzds on the needle find 
their wages depressed by the competition of those who are 
not wo7'king for a living at all, and to whose comfort in 
life it is of no real importance, whether they receive high 
wages or low. It is surely no occasion of wonder, that, 
in a struggle so unequal, starvation comes to the woman 
who must not only live by her needle, but perhaps sup- 
port children, or even a husband disabled by disease, or 
still worse by vice. 



1 86 ECONOMICS. 

In such circumstances as these, it is quite useless 
and childish to call employers by hard names, or de- 
nounce the law of competition. Employers are no more 
deserving of censure than any one who buys and wears 
their cheap made clothing. We have shown that they 
are just as much held in the grasp of an inexorable law 
as the needle-women themselves. Nor is there any 
occasion to denounce that law. It has in this very case 
performed its appropriate function faithfully and benefi- 
cently. It has afforded the clearest possible proof, 
that these women are seeking a living where it cannot 
be found, and that they ought at once to abandon the 
needle, and seek some other mode of employment. 

§ 135. This case clearly reveals the fact, that there 
may be in civilized society obscure and sicbtle forces^ that 
exert great influejice on wages, which at first thought would 
hardly be suspected of sustainijig any relatio7i to the sitbject. 
It is not any natural necessity which concentrates so 
great a force of female competition upon this one occu- 
pation. There are modes of employment for which many 
perhaps most of the needle-women are well fitted, that 
are not at all crowded, and in which they would receive 
wages sufficient to support them in comfort and happi- 
ness. Such an employment is domestic service. But 
thousands are repelled from this and other avocations 
which are quite open to them, by fear of the loss of social 
position. Multitudes of women would rather live from 
day to day at their needles on the very verge of starva- 
tion, than engage in an occupation imagined to be less 
socially respectable with every assurance of comfort and 
plenty. It is surely desirable that all classes of society 
should be educated out of a prejudice so silly and mis- 
chievous. 

We cannot forbear remarking in this place, that this 
is one of the points at which our science necessarily touches 



CAUSES OF VARIATION OF WAGES. 187 

that of ethics. The great multiplication of'this class of 
women among us is largely due to the unsatisfactory- 
condition of domestic life. Large numbers of young 
men of the finest promise are quite unfitted for domestic 
life by self-indulgent vicious habits, and therefore never 
marry. It requires no great skill in arithmetic to prove, 
that, as the numbers of the two sexes are almost pre- 
cisely equal except as inequality is produced by emigra- 
tion or other accidental and transient causes, if large 
numbers of men li\/e in celibacy, an equal number of 
women are sure to fail of obtaining their natural protec- 
tion and support in domestic life. The number of 
women compelled to engage single-handed in the strug- 
gle for existence is thereby greatly increased. This is 
becoming an enormous evil in American society. Many 
writers on economics lay a great deal of stress on the 
imprudent marriages of the poor. We are not disposed 
to enter into any controversy with them on that subject, 
but, in a true view of the matter, our science has more 
and stronger words to say against that vicious celibacy, 
by which thousands utterly fail to discharge their duty 
as the natural supporters and protectors of women. 
American society, American economy is suffering a great 
deal more from vicious celibacy than from imprudent 
marriages. 

§ 136. The aid of our science will be ijivoked in vain by 
those who at the present time are clamoring for the abolition 
of that protectorate of wo7nen, which was alluded to in a 
previous section. It is one of the wise provisions of the 
human constitution, by which man willingly bears the 
severer and ruder toils and struggles of life, in order 
that woman may be sheltered in the tranquil seclusion 
of home, and perform in greatest perfection her great 
function of rearing up in long succession the generations 
of men, that are to bear forward civilization towards its 



1 88 ECONOMICS. 

highest perfection ; that when the parents pass away, the 
children may be prepared to take their places, stronger 
in all that constitutes the highest humanity, than those 
who have gone before them. Division of labor is true 
economy, the more perfect the division the more perfect 
the economy. The progress of civilization will not dis- 
pense with this most primitive and most necessary of all 
divisions of labor, but will cultivate both parties in it up 
to the highest possible adaptation to their respective 
functions. 

§ 137. There is at the present time an uneasy feeling 
in many minds, growing out of the suspicion, that there 
is some misadjustment of the economic system^ whereby 
women are deprived of their natural share of the products 
of industry. It is one of the numerous cases in which 
restless spirits seek to relieve themselves by denouncing 
and censuring somebody, without being at the trouble 
first candidly to inquire, whether anybody is censurable, 
or if anybody, who and for what. It is claimed that when 
women do the same work as men and do it as well, they 
ought to receive the same pay. The very form of this 
proposition shows, that the person who affirms it is look- 
ing at the ethical and not at the economical view of the 
subject. "■ Ought " belongs not to economics. It is our 
business as economists to inquire what is the natural 
law which determines woman's wages. It will not take 
long to discover, that it is the same law of competition 
that determines all other wages. We have demonstrated 
the universality of this law. Is there then some arbi- 
trary and artificial adjustment of the economic machinery 
of the world, by which the law of competition has been 
made to bear unfairly on women ? This is claimed, per- 
haps in some cases justly. It may be that law in a few 
instances, and custom in more, may have shut out women 
from competing for wages, in modes of employment in 



CAUSES OF VARIATION OF WAGES. 1 89 

which they might have had a fair prospect of success. 
Whatever obstacles of this sort may have existed, we 
are not disposed to defend them, and they are certainly 
assailed by forces which must sweep them away. If 
women have not had a fair chance, they are sure to have 
it soon. But a thoughtful person, whether man or 
woman, will surely not fail to see, that the organization 
of the sexes, their constitution both of body and mind is 
such, that women will always enter the arena of competi- 
tion for the prizes which labor wins, under great, una- 
voidable, natural disadvantages, and that consequently 
in the labor markets of the world, there will be one rate 
for men and another for women. It is with this great 
stubborn natural fact, that we as economists are com- 
pelled to deal. He who demands that in this struggle 
female muscles and sinews, female force and endurance 
shall command, or if he prefers to say so, ought to com- 
mand as high wages as those of the other sex, has en- 
gaged in a desperate struggle with the laws of nature, 
and we must leave him to manage his case as well as he 
can. To us it seems quite desperate. We would really 
advise him to give it over at once, for we think he is sure 
to be vanquished at last. It really does seem to us, that 
from the very organization of the sexes man's labor will 
always rate higher in the market than woman's, and that 
eloquent denunciations will really accomplish very little 
towards making it otherwise. 

At the same time it would be very difficult to show, 
that^ at least in all ordinary cases ^ women do not receive the 
same wages as men, when they do the same work and do it 
as well. For example, if one wants to employ two teachers 
in the same school, one male and one female, he will 
certainly offer much higher wages for the former than 
for the latter. The reason why he will, is that he knows 
that by the law of competition he can obtain the services 



igo ECONOMICS. 

of a woman at much lower wages than he must pay for a 
man. But why does he employ the man at all? Why 
hot two female teachers instead of one man and one 
woman? Evidently because he expects service from one 
of them, which a woman cannot so well perform. He 
does not offer the woman lower wages than the man, with 
the expectation that she will perform the same service, 
but with the distinct intention^ that the man shall do 
that which will not be expected of the woman. Since 
he wants a man's work, he sees the necessity of offering 
a man's wages. 

§ 138. Is it asked why not place male and female 
teachers at once on the same basis of pay ? We answer 
a law of nature forbids it, renders it impossible, just as 
was demonstrated in a previous chapter in respect to the 
wages of needle-women. To offer man's wages for the 
place that was to be occupied by a female teacher would 
be a grievous injury to all women well-qualified for the 
place, who would gladly perform the service desired for 
wages determined by competition. Teaching is one of 
those occupations upon which the competition of women, 
obstructed and shut out by natural disadvantages from 
many other modes of employment, will be concentrated 
in great force. Wages will therefore be inevitably de- 
pressed. Eloquent men, and perhaps still more eloquent 
women may declaim against it, and produce any amount 
of commotion in the popular mind, but they cannot help 
it. It is a law of nature they are resisting, and no elo- 
quence can prevail against it. If a woman is wanted 
for a teacher of children and youth, competition will 
make her wages low. If you want something done in 
the school-room which you suppose a woman cannot so 
well do, and therefore think it necessary to employ a man, 
then you must pay him as much as he could obtain in other 
employments, where equal skill and talent are required. 



CAUSES OF VARIATION OF WAGES. 191 

111 dealing with this question of woman's wages, it is 
a grievous wrong to woman to forget, that in her high 
and God-appointed function, the best and noblest ser- 
vices she ever performs for the world, are high above all 
commercial valuation, and are performed in such rela- 
tions to domestic society, that her own proper reward is 
secured to her, without entering the arena of competition 
for wages. Those who forget this are not the true friends 
of women. 

§ 139. We have dwelt the longer on this subject of 
woman's wages, partly because the public mind is mor- 
bidly excited on the subject, and greatly needs to see it 
in the clear light of scientific analysis, and also because 
it forcibly illustrates some of the most important princi- 
ples of the general subject of wages. The suggestions 
which have been made in the two previous sections are 
capable of a very wide application. The principal func- 
tion of competition undoubtedly is to determine price. 
But that is not its only function. // is in most cases the 
safest guide one can have as to the occupation which he 
should pursue. There are many persons whose life is in 
a great measure a failure, because they will not follow 
its indications. When one has found that in any given 
employment he cannot obtain for his services a living 
compensation, he ought to regard it as a clear indication 
that he has mistaken his calling, and to seek some other 
method of serving his generation. This remark is appli- 
cable to many men who have attempted professional life, 
but cannot succeed in it. One should assume that he 
was not made in vain, and therefore if he cannot succeed 
in one thing he should try another. 

We would even apply this principle to those who have 
undertaken the sacred function of the Christian 7ninistry. 
We apply it here however under a very grave limitation. 
Men do not always value most that which is most pre- 



t92 ECONOMICS. 

cious and most needful to them. There are cases in 
which the noblest thing a man can do is, to spend his 
life in rendering services to mankind which they do not 
appreciate and will not reward. If a Christian minister 
finds that he does succeed in rendering such service to 
mankind, by promoting their moral and spiritual inter- 
ests, let him never abandon his high function on account 
of the scantiness of his pecuniary reward. But if on the 
other hand he finds that his labors in the ministry fail to 
yield him a support for himself and those dependent on 
him, and yet sees no satisfactory evidence, that his labors 
are successful as a preacher of righteousness and an 
advocate of the highest moral and spiritual truth, he is 
quite at liberty to serve God and his generation in some 
other occupation. 



CHAPTER VI. 

Ownership of Land. 



§ 140. Having considered the various phenomena of 
wages, it would seem appropriate that we next proceed 
to the examination of the remaining branch of Distribu- 
tion, the share of the gains of production which falls to 
capital. But a preliminary question will first demand 
our attention. The received method of treating the sub- 
ject recognizes three parties between whom the proceeds 
of production are to be divided, viz., land-owners, labor- 
ers and capitalists. We have recognized but two parties 
viz., laborers and capitalists^ and have proposed to regard 
land as fixed capital and rent as the profit of it. Before 



OWNERSHIP OF LAND. I93 

we proceed further we must assign our reasons in justi- 
fication of this division of the subject. For this purpose 
it will be necessar}^ to examine a question not generally 
regarded as belonging to the science, — the nature and 
foimdation of prope7'ty in land. It seems to us that the 
want of a correct understanding of this subject has led 
to an erroneous theory of rent, and rendered men's 
minds tolerant of violations of fundamental economic law 
ill regard to the tenure of land, which would otherwise 
seem unendurable. The discussion of this question is also 
necessary in order to justify the position taken by us in 
the preliminary chapter of this treatise, that no owner- 
ship of any material thing can be acquired, except by 
human labor bestowed upon it, whereby it is rendered 
capable of being serviceable to man. We shall therefore 
devote this chapter to a consideration of the ownership 
of land. 

§ 141. Undoubtedly the first aspect of this question, 
is, that in the arrangements of nature, land, like the 
water of oceans, lakes and rivers, or the atmosphere 
which envelopes us all, is the free gift of the Creator to 
all men alike, and can be the property of no one. There 
are perhaps not a few who so regard it at the present 
time, and nourish in their souls an ever glowing sense of 
injustice at what they regard as the unjustifiable monop- 
oly of the private ownership of land. It becomes there- 
fore necessary for us clearly to point out the foundation of 
the private ownership of tand in some incontrovertible 
natural law, or submit to a most radical economic revolu- 
tion. There is not a question which the economist is 
under a more imperative necessity of examining. If the 
private ownership of land is not the clear and inevitable 
result of natural law, it cannot be permanently sustained 
as a law of society arbitrarily established and enforced. 
In this as in all other sciences, the laws of nature and 



194 ECONOMICS. 

all their legitimate consequences will remain forever, all 
else will be swept away. 

In the first chapter of this treatise, it was enunciated 
as the fundamental law of the science, that every man 
owns himself and all which he produces by the exertion 
of his powers. It was also stated as a consequence of 
this law, that when any man expends his labor upon a 
material substance which he has received as the gift of 
God, no human labor having been previously exerted 
upon it, by expending his labor upon it, he becomes the 
owner of the material thing which by his labor he has 
made capable of gratifying human desire. If for example 
one finds a tree in some primeval forest to which no one 
has established any previous claim, cuts it down, and 
fabricates it into articles of beauty or utility, his labor 
expended on it makes him the owner of the wood, in 
order that he may enjoy the benefit of the labor he has 
expended on it. 

§ 142. A more attentive comparison of air, water and 
land will show, that the last of the three is distinguished 
f7'om the other two by a most reinarkahle difference. The 
two first mentioned require no modification by human 
effort to fit them for man's use. The condition of the air 
cannot be rendered more fit for human lungs than it is. 
It always envelopes us ready for our use. Nothing which 
man can do will improve either its quantity or its quality. 
All we can do in respect to it, is to see to it that we do 
not shut ourselves out from its free circulation in its own 
primitive perfection. Man cannot improve the atmos- 
phere by any efforts of his, and therefore he cannot 
own it. 

The same is true of water as it exists in oceans, lakes 
and rivers. No man can make the clear water of Lake 
Michigan his own. If water can only be obtained by 
digging a well at much expense of human labor, he who 



OWNERSHIP OF LAND. I95 

digs the well owns the water. This has been held to be 
true ever since the days of Abraham and Lot. It is 
recognized even among the wild wanderers of the desert. 
The water of the Mississippi cannot be owned, though 
he that has placed it in barrels, and carried it to families 
living at a distance from the river may obtain compensa- 
tion for it. 

But land differs widely in this respect both from air 
and water. Of itself in its natural state it supplies no 
want of man. It can only be made to afford human 
sustenance by being subdued and cultivated. In its 
natural state it is as useless as the tree growing in the 
primeval forest. It supports game, and that is the prop- 
erty of any one that can capture it. By capturing it, 
the huntsman acquires the ownership of it but not of the 
land on which it grazed, and over which it ran. Untilled 
land produces wild fruits, and he who gathers them, owns 
them, but not the soil on which they grow. If land 
could only minister to human well-being by its spontane- 
ous productions, it could no more be subjected to owner- 
ship, than the oceans or the great lakes. 

Fot'tions of the ocean ai'e subjected to national ownership 
by the outlay of labor and capital by which they are ren- 
dered capable of being navigated in safety. That por- 
tion of the ocean adjacent to the land, where buoys are 
established, light-houses built and sustained, and chan- 
nels leading into harbors are improved, is recognized as 
belonging to the government that makes these outlays 
of labor and capital upon it. The principle for w^hich 
we contend is recognized even in respect to water, wher- 
ever it is possible to apply it. For the most part how- 
ever man's labor can make no modification of the ocean 
by which he could appropriate it. 

§ 143. But he that subdues the land, destroys the 
forests that shade it, or any other spontaneous vegetation 



196 ECONOMICS. 

that hinders the growth of food for man, and tills and 
sows it, acquires the ownership of it^ just as of any other 
natural substance, which by his labor he renders sub- 
servient to human uses. Two men are rambling together 
among the fastnesses of the Rocky Mountains. One of 
them discovers a tree of rare fitness for the manufacture 
of articles of beauty, and by his labor bestowed on it he 
makes it his. The other discovers, in those regions of 
almost universal barrenness, a tract of land capable of 
abundant productiveness. He removes from it the wild, 
luxurious but useless growths of nature, draws water from 
the mountain stream that rushes along its border, and 
thus provides for its perpetual irrigation, encloses it 
against the incursions of animals, and plows and sows it. 
This man owns the land by the same natural title by 
which the other owns the tree which he cut from the 
original forest. No man can show any distinction in 
principle between these two titles. In both cases alike 
we recognize the only ownership which man can acquire 
of anything which God has made. Man enters on all 
land by the same process. Land on which no human 
labor has been bestowed yields nothing to human well- 
being. All its availability for this purpose is dependent 
on conditions which human labor alone furnishes. 

It may perhaps be said, that in the case just supposed 
the man that first plowed and planted the land would be 
entitled to gather the ha?"vest which he has sown, but no 
?nore. This is certainly untenable. The labor which he 
has expended upon it has no exclusive reference to that 
one harvest^ but is a permanent preparation for every 
future crop, and he will be the same absolute owner of 
it at the end of the year as at the beginning. A single 
crop will by no means compensate him for his labor. 
He has conferred on it the capability of being a perma- 
nent instrument of human well-being, and that capability 



OWNERSHIP OF LAND. I97 

by the law of nature he owns. He will stand in the same 
relationship to it at the end of any number of years, as 
when he planted the first crop. If he continues to keep 
that land in a state of fitness for cultivation, the time 
will never come, when he or the person to whom he has 
transmitted his title, will not be by nature's law the one 
only owner of it. 

§ 144. It will then be asked what is the origin of that 
ownership of new lands which the first settler buys fro77i the 
government 2 How is the government the owner? The 
common idea is perhaps, that the savage tribes that 
roamed over North America when the Europeans came 
to it, were the owners of the soil, and that our present 
government owns it by having purchased this title by 
treaty. We cannot regard this view of the matter as at 
all tenable. We cannot admit, in the first place, that 
these savages ever did own the soil. They never did that 
which alone creates ownership. They never made any 
modification of the land by labor expended on it, which 
fitted it to be an instrument of production. They roamed 
over it like the herds of buffalo, and lived on its spon- 
taneous products, just as the wild beast did. But by so 
doing neither the buffalo nor the savage acquired owner- 
ship, the latter no more than the former. He that gathers 
blackberries or shoots deer on a piece of ground does 
not become the owner of it. No one owns a tree of the 
forest because on a single year, or for many successive 
years, he gathered the nuts that grew on it. The Eu- 
ropean settlers of North America took possession of no 
capabilities of production, which the labor of those sav- 
age tribes had created. As those savages retired before 
them, they had exactly the same labor to perform which 
they would have had if there had never been any human 
inhabitants of the continent before them. In this respect 
the case was exactly the same, that it would have been 



198 ECONOMICS. 

if wild beasts only and not men had retired before them. 
What they took possession of everywhere was the work 
of the Creator, and not the work of man. The assump- 
tion that these savage tribes w-ere the owners of the soil 
is therefore without any foundation at all, and the influ- 
ence which it has exerted on the literature of Christen- 
dom, and on our policy toward the Indian, is exceedingly 
to be deplored. 

§ 145. Nor again are these tribes independent nations. 
Nationality implies a defined national domain, laws, in- 
stitutions, a stable government, able to give substantial 
guarantees for the fulfillment of its part of any treaty 
stipulations. Every treaty we have ever made with the 
Indian has been at two points radically void. On the 
one hand the Indian was not the owner of that which 
both parties made believe he sold to us : he had no title 
and could therefore give none. On the other hand, we 
stipulated to do that which the nature of the case made 
it certain we could not do. We guaranteed to the Indian 
the perpetual possession of the hunting grounds to which 
he retired. It is devoutly to be hoped our government 
will never make any more such promises to the Indian, 
except on condition of his becoming a civilized tiller of 
the soil. Without that condition the whole power of our 
government cannot fulfill such a promise. There is a 
higher law than any human government can enact, that 
predestines the soil of North America, not to be hunt- 
ing grounds for any horde of savages, but to yield all its 
resources of whatsoever kind to the ends of civilized 
humanity. Assign to any Indian tribe any spot you 
please, if the Indian uses it as a mere hunting ground, 
you cannot make him the owner of it. God does not 
give ownership of this earth in that way, and you can not. 
While it is held only for such a barbarous use, civiliza- 
tion in its progress over the continent will discover its 



OWNERSHIP OF LAND. 



199 



resources which no savage can ever develop, and will 
demand and obtain its own ; and no treaty which an}' 
government can make can doom those resources to per- 
petual uselessness, that a horde of savages may perpetu- 
ate their barbarous life. The law by which civilized 
man is to increase and replenish the earth will always 
prove to be superior to any claim which savages can set 
up to their hunting grounds, and any treaty which a great 
civilized nation may make with a savage tribe in disre- 
gard of that law is a solemn farce, the pretense of mak- 
ing which is a crime, not the yielding to an inevitable 
natural necessity of permitting it to be broken. 

§ 146. If we are asked what we will do with the 
Indian^ that is a question which does not belong to our 
science, we must turn it over to the Christian moralist 
and statesman. All we are concerned with at present is, 
to set aside, and disabuse men's minds of the notion 
that our title to our lands originated in purchase from 
savage tribes, who never did that which our science must 
regard as creating the only possible ownership. One 
word however we must say of the treatment of the In- 
dian, to protect ourselves from misconception. The 
European occupants of North America should have 
always treated the Indians as men, to be protected in all 
their rights, to be restrained by any necessary exertion 
of force from doing wrong, and to be encouraged by all 
practicable means, to forsake their savage \\{q, and adopt 
the habits and accept the blessings of civilization. Give 
the Indian every thing to encourage him in his efforts to 
live a civilized life, nothing to aid him in perpetuating 
his barbarism. Our policy toward the Indian has so 
long been constructed on a false assumptign, that it may 
be no easy matter at this late day to return to sound 
principles in our treatment of him. We trust however 
that it is not quite impossible. 



200 ECONOMICS. 

§ 147. From this inevitable digression, we return to 
the question, what is the origin of that title which the set- 
tler buys from the government ? We answer it is the 
title to these lands which the government has acquiied, 
by surveying them into convenietit parcels, and marking 
them out by metes and bounds, whereby every man can 
identify the farm he has purchased, and be saved from 
all disputes with his neighbors about boundaries, by 
extending over them the jurisdiction of a civilized govern- 
ment, thus rendering life and property in a great meas- 
ure secure from the very origin of the settlements, and 
by affording to the inhabitants of the remotest frontier, 
protection from the incursions of savages. These helps 
provided by the government for the bold pioneers of 
civilization are very cheaply purchased, by paying the 
price which the government exacts for the fee simple of 
the lands. Previous to the entry of the government on 
these lands, by making such provisions as these for the 
benefit of the future settler, they were, like the rivers that 
water them and the atmosphere that overlies them, with- 
out an owner. By entering on them and making these 
necessary provisions for civilized colonization, the gov- 
ernment became the owner, and conveys its ownership 
to the individual purchaser. 

As to the question, by what title the United States 
claim the right to enter 07i certain lands, and acquire the 
ownership of them in the manner described above, rather 
than England or any other foreign power, it does not 
belong to us to discuss it. That question does not re- 
late to the ownership of the soil, but only to the right of 
political jurisdiction, and depends on certain arbitrary 
understandings entered into by the civilized nations of 
the worlds rather than on any clearly defined natural law. 
It belongs therefore to the writers on international law 
and not to us. 



OWNERSHIP OF LAND. 20I 

§ 148. It may perhaps be objected to this view of 
the nature of o^Nue-rship^ that the labor originany expended 
in brmging land into cultivation is greatly overpaid by per- 
petual ownership. It must be admitted that, in some 
cases, it does seem to receive a very high compensation. 
In view however of all the facts this is^, even in these 
cases, more apparent than real. When the land pos- 
sesses great natural productive power, and the labor re- 
quired to subdue it is comparatively small, the outlay 
necessary to constitute ownership is largely rewarded by 
the value of the permanent possession. But it should 
be borne in mind, that this outlay is often made, when 
the interest on money is not less than five per cent per 
month, and consequently one hundred dollars is equiva- 
lent to one thousand dollars in ordinary circumstances. 
Besides it should not be forgotten that the beginnings of 
civilized cultivation often involve exposure to many hard- 
ships and perils, for which it is very reasonable that the 
first settler should receive compensation. 

Nor is it by any means generally true that the labor 
expended iji acquiiHng the ownership of new land is very 
largely rewarded. We suspect it would be difficult to 
find a well-informed man who believes, that the present 
market value of the lands of the United States at all ex- 
ceeds the actual cost of subduing them, and bringing 
them into their present state of cultivation, or in other 
words, that the present rental of the whole country ex- 
ceeds interest at current rates on the cost of improve- 
ments. It is probably impossible ever to obtain any 
answer to the question we here raise, which would be 
even proximately accurate. But there is certainly a great 
deal of cultivated land in this country, the annual rental 
of which would fall very greatly below current interest on 
the cost of improvements made on it. If there is also a 
good deal of land the rental of which would exceed the 



202 ECONOMICS. 

interest on the cost of improvements, that affects not the 
question before us. Land is by no means the only ex- 
ample of a material substance of which ownership has 
been acquired by labor expended on it, the value of which 
greatly exceeds the value of the labor so expended. A 
gold hunter opens a mine and finds gold in paying quanti- 
ties. In virtue of the labor of opening it, he owns it 
with all the riches which it contains, no matter how vast 
the sum. If by a fortunate effort of ingenuity one in- 
vents a machine for which the world will willingly pay 
him millions, he is entitled to those millions, and may 
refuse to disclose his secret, except for value received. 
A man may be equally fortunate in laying claim to a 
piece of land by bestowing labor upon it. Many have 
been thus fortunate, but this by no means sets aside the 
principle, that the ownership of any material thing which 
the Creator has made, is obtained only by labor bestowed 
upon it, whereby it becomes capable of supplying human 
want. It is nothing different from what occurs in rela- 
tion to all other material possessions, where the princi- 
ple is confessedly applicable. 

§ 149. There is one other objection to this doctrine which 
to some persons may seem weighty. It must be owned 
that land has one seeming peculiarity, distinguishing it 
from most other kinds of property. It is very likely to 
be enhanced in value by the progress of population, 
wealth and civilization, without the expenditure of any 
additional labor in its improvement. That there is such 
a general tendency cannot be denied. Yet the facts are 
after all by no means uniform. With the steady growth 
of some of the New England states in all the elements ot 
civilization, within the last fifty years, a large portion of 
their land has greatly declined in price, instead of ad- 
vancing, as this general statement would im.ply. The 
investments made fifty years ago in improving it have 



OWNERSHIP OF LAND. 203 

proved as bad as those in some other parts of the country 
have been good. When a man lays out his labor on a 
piece of land, and takes the land as his reward, he does 
not know that the community around it will advance in 
civilization. It may decline. In that case his invest- 
ment will be a loss and not a gain. He expends his 
labor at a risk. If things turn in his favor, he will gain, 
if against him he will lose. In this respect this case 
does not in any degree differ from any other outlay of 
labor. In this as in all other things, no man is certain 
when he expends his labor, that he shall gain that which 
he seeks by the outlay. 

There is always a presumption however, that he who 
by an expenditure of labor acquires the ownership of a 
good piece of land, will obtain a possession which, by 
the growing prosperity of the community, will on the 
whole increase in value. It will, hereafter be shown, in 
treating of the rent of land, that this probability is allowed 
for in every contract for rent. No man receives as high 
interest on his landed capital, as on capital invested in 
other ways. He willingly consents to receive a part of 
his interest in the presumed regular enhancement of the 
price of his land by the progress of society. It is an ad- 
vantage which he does not get for nothing, but constantly 
pays for it. 

We come therefore to the conclusion that, in rela- 
tion to our science, land is simply and only a gift of God 
to man, which in its natural condition is without value, 
but w4iich is rendered by the expenditure of human labor 
on it, the most powerful and important instrument of 
supplying human want. It is as truly and simply fixed 
capital, as a water-wheel or steam engine. So we have 
classified it in this treatise, and so we shall continue to 
regard it, in considering the share of the gains of indus- 
try, which natural law will allot to capital. 



/ 



204 ECONOMICS. 

CHAPTER VII. 

Interest. 

§ 150. The share of the capitalist in the gains of pro- 
duction must next be considered. These, according to 
the nature of the investment from which they are derived 
are called either Literest, Rent or Profit. Of these In- 
terest is the least complicated and will therefore be first 
considered. 

Definition, Interest is compensatioit for the use of 
capital which is entirely entrusted to afzother^ to be i-epaid 
to its owner at a specified time^ and with such considera- 
tion for its use as may be agreed on. 

In some cases coinpensation for the use of capital is all 
which is included in interest. The security for the re- 
payment of the sum loaned according to the conditions, 
is regarded as perfect, and therefore no consideration is 
paid for any risk. Loans to stable and regular govern- 
ments, for example like those of England and the United 
States, are regarded as being of this character. Loans 
secured by mortgage of real estate may be made as secure 
as anything human can be. But in a great number of 
loans from one individual to another, a greater or less 
degree oi risk is encountered, and the capitalist receives 
compensation both for the use of his capital while in the 
control of the borrower, and for the risk which he en- 
counters that it may not be repaid to him according to 
the contract. The lender will demand a higher rate of 
interest in some cases than in others, according to his 
estimate of the risk incurred. This is the reason why 
some governments are able to borrow money at the very 
lowest rates, while others can scarcely borrow it at all. 



INTEREST. 205 

and if at all, only at very exorbitant interest. The same 
is true of individual borrowers. It will be the lot of the 
man who is ill able to pay any interest at all, that he 
will pay a much higher rate than the man whose means 
of payment are most abundant. It is not because the 
lender desires to oppress the poor, but because he must 
have insurance for the risk he runs. 

§ 151. The principle on which the payment of interest is 
founded is very obvious. A man may possess capital 
which he cannot himself use. He may be incapacitated 
by the infirmities of age or disease so to manage it as to 
derive profit from it. He may follow an avocation in 
life in which he cannot invest his gains so as to derive 
advantage from them. If he can get nothing for the use 
of his capital, he will not incur the risk of entrusting it 
to the hands of another, but will lay it away as safely as 
he can for future use. The only motive therefore which 
can induce him to part with it is, that he may receive a 
fair compensation for its use, and for any risk which may 
attend the transaction. He will seek a borrower, and he 
will find some one of good credit, who will be willing to 
pay him the market rate of interest. For there are 
always those who have power and skill to labor, but 
no capital with which to procure necessary tools and 
materials. 

Th^ same conipetition '^\i\Qh controls all other values 
will no less assert its supremacy in determining the rate 
of interest, and that rate which competition has estab- 
lished for loans involving only ordinary risk will be de- 
manded by the lender and willingly paid by the borrower. 

It is not easy to see what excuse the legislator can 
plead for interfering in this matter. And yet in all the 
past history of the world he has shown a strange but 
universal propensity to do so. In most countries of the 
world a reason ipight have been given for it, which can 



2o6 ECONOMICS. 

have no validity in this country at the present time. In 
numerous instances both ancient and modern, govern- 
ments have not only undertaken to compel the fulfillment 
of contracts, but have enforced the payment of debts by 
the imprisonment of the debtor, and even by selling him 
into slavery. If governments resort to such measures 
for the collection of debts, it is quite reasonable that they 
should so construct the law as not to favor the increase 
of indebtedness, or even to discountenance the lending 
of money on any terms. Perhaps this is one of the rea- 
sons why usury laws have been so persistently adhered 
to. But if this is so, a more humane treatment of the 
debtor should be accompanied by their abolition. When 
as at the present time in this country, the law not only 
exempts from seizure for debt the person of the debtor, 
but also a considerable amount of his property, in the 
form of necessary household goods and tools of his oc- 
cupation, that reason for legislative interference between 
the borrower and the lender can no longer have any 
weight. 

It must however be conceded, that the propriety and 
wisdom of the usury laws of other ages, and perhaps of 
other countries in our own age, cannot be safely judged 
by our standards. It may be clear, that laws regulating 
the rate of interest are incongruous with the general free- 
dom of our system, and a violation of economic law ; but 
it will not hence follow that in countries where all the 
economic forces are in a great measure counteracted and 
held in abeyance, such laws may not be necessary for 
protecting the debtor against the cruel exactions of the 
creditor. No one familiar with the Latin classics can 
fail to see, that under Roman laws there was such a 
necessity. 

The law of ownership means that the owner will de- 
cide by his own free will on what terms. he will part with 



INTEREST. 207 

his capital, and it equally means that the borrower will 
decide on what terms he will consent to take it. Till 
these two wills are brought to coincide in the matter, 
there may be force, but there can be no loan ; and when 
they are at one by free competition, it is impossible to 
give any good reason why any other personality should 
interfere in the case. There can be no such interference 
without a direct violation of ownership. We say nothing 
of the morality of such interference, but we do say that 
it is a violation of that original law of ownership which 
is the foundation of our whole science. It is moreover 
a futile and useless interference, an attempt to control by 
statute law that which a law of nature has already de- 
cided, and placed quite beyond the sphere of human 
legislation. It is within tlie domain of natural law, and 
therefore statute law will in vain attempt to meddle with 
it. The law may forbid the capitalist to demand or ac- 
cept more than a given rate of interest, but it cannot 
compel him to lend at that rate. If he can use his cap- 
ital more profitably in other ways than by lending it at 
that rate, he will not lend it. It may forbid the borrower 
being compelled to pay more than a given rate, but it 
cannot enable him to obtain money at that rate. It may 
forbid two human wills consenting together at any other 
point than that determined by the law, but it cannot 
make them consent at that point. It may throw obstacles 
in the way of borrowing and lending capital, and thus do 
great injury to both parties. But it cannot make them 
borrow and lend on any other terms than those they 
mutually agree upon. While men retain within them- 
selves an intuitive perception of the nature and inaliena- 
ble character of ownership, laws forbidding men to con- 
tract to lend and borrow money on such terms as seem 
to them fit, will be essentially nugatory, and provoke 
unceasing efforts at evasion, and men will be ingenious 



2o8 ECONOMICS, 

enough to render those evasions successful. While the 
general spirit of trade is as at present, these predictions 
will be everywhere verified by fact. The law will more- 
over fail to find any support in the conscience of the 
community. There will be a feeling in the hearts of 
men, that the law violates the property rights both of the 
borrower and of the lender, and efforts at evasion will 
either not be regarded as wrong at all, or be judged very 
leniently, as sins of so venial a character as not to merit 
any severe condemnation. We ask all thoughtful men 
who are practically acquainted with this matter, to judge 
for themselves, whether the above picture is not a true 
exhibition of the facts as well as of the theory of the 
case. If this is so, more words are unnecessary. The 
sooner our legislators withhold their hands from all inter- 
ference in this matter, the better it will be both for trade 
and morals. 

§ 152. When borrower and lender are left free of any 
legislative interference, there is probably no case in the 
whole economic system in respect to which competition 
acts more freely than in determining the rate of interest. 
There are seldom or never any attempts to control it by 
combinations, either of lenders or borrowers. The rates 
actually paid in different countries at the same time, and 
in the same country at different times, vary between very 
wide extremes. In some countries, in transactions sup- 
posed to involve no risk, it is as low as two per cent per 
annum. In some cases, as for example in the new states 
of our own country, it is sometimes as high as fifty or even 
sixty per cent per annum. It is perhaps generally sup- 
posed that in these last cases rates of interest seemingly so 
exorbitant can be occasioned only by the great risk which 
the capitalist incurs. But so far as our observation has 
extended, this is by no means a fact. These rates are 
often due largely to the exceedingly low rates at which 



INTEREST. 209 

the government offers the perpetual ownership of some 
of the most fertile lands in the world, and the scarcity 
on the frontier of the money with which only the pur- 
chase can be made. Most men who emigrate to the 
frontier wilds carry little with them except their power 
to labor. For the small sum of money necessary to pro- 
cure for them the perpetual ownership of a farm of a 
sufficient size, and indisjDensable tools, implements and 
domestic animals, they can afford to pay almost any rate 
of interest that may be demanded. In many cases they 
hope, not without reason, to repay the loan out of the 
first two or three crops from the land. They are there- 
fore willing to give to the money-lender a liberal share 
of the very large profits they are likely to receive, rather 
than not obtain the small sum of money which is quite 
indispensable to their success. Indeed one has only "to 
study the conditions under which the borrowing and 
lending of money is transacted in a prosperous frontier 
settlement, to become quite convinced of the inexpedi- 
ency and inherent absurdity of laws regulating the rate 
of interest. If in such circumstances usury laws could 
succeed in limiting the lending of money to a prescribed 
medium rate of interest, that success would be the great- 
est possible injury both to borrower and lender. The 
borrower would be unable to obtain money when it would 
be a very great benefit to him to get it, even at a much 
higher rate of interest than that demanded, and the 
lender, unable to obtain his share of the gains of the 
transaction by lending his money, would himself pur- 
chase the land of the government, and sell it out to the 
actual settler on terms much less favorable to him, than 
to have lent him the money at the high rate of interest 
proposed. 

§ 153. It can hardly be interesting or profitable to 
trace out the nearly innumerable causes which pi'oduce 



2IO ECONOMICS. 

variations of the rate of interest between these widely re- 
mote extremes. Through all the fluctuations which they 
occasion, they are as true to the one law of competition, 
as the tides of the ocean are to the law of gravitation. 
Sometimes doubtless risk is the chief element of varia- 
tion, as is apparent in the rates of the government loans 
of England and Holland on the one hand, and those of 
Turkey and Egypt on the other. Sometimes high rates 
of interest are occasioned, as in Australia and in our 
own new states, by the large profits that can be realized 
from the possession of capital, and the great scarcity of 
money in a community of recent emigrants. Men who 
have plenty of money have no motive to emigrate to the 
wilderness, and are not easily persuaded to send their 
capital where they are not willing to go in person. 

" Any occitrrence which raises men's hopes of gain to be 
realized from the investmeiit of capital in active trade, will 
make them more anxious to obtain it, and willing to offer 
a higher rate of interest for it. Any thing which dimin- 
ishes the profits of trade and depresses men's hopes will 
render them less desirous of borrowing money, less dis- 
posed to compete with each other for the possession of it, 
and therefore reduce the rate of interest. The phrase 
" value of money " has two very different meanings. In 
one use of it, it means the value of the precious metals 
as compared with the value of other commodities. In 
this sense it has been shown that the value of money is 
less liable to fluctuation than any other commodity, and 
that therefore it is better fitted than any thing else to be 
the medium of exchange, and the standard of all value. 
In the other use of it the meaning of the phrase is the 
rate of interest which money will command in the mar- 
ket. In this use of the term few things are more fluctuat- 
ing in value than money, and therefore few things are more 
suitable to be left to the influence of free competition. 



INTEREST. 211 

The tenure of land in fee simple, and the existence of 
perfect freedoin of exchange i7i respect to it, have a most 
salutary iniluence on the interest market. They tend 
greatly to secure it against violent fluctuations, and 
dangerous extremes, and enable all that very large por- 
tion of the community that under such a system own 
land, at all times to borrow money at the lowest current 
rate, without paying for extraordinary risk. For this rea- 
son all those provisions of the law which, under the in- 
tention of protecting the debtor, make the foreclosure of 
mortgages difficult, expensive, or subject to long delays, 
are on the v;hole injurious to borrowers, rather than 
beneficial. The more direct and speedy the remedy of the 
creditor is, in case of the failure of the debtor to pay ac- 
cording to contract, the lower the rate of interest at which 
he will be willing to lend money. It is probable that 
this is one of the causes why the rate of interest is so high 
in British India. It is not merely on account of the 
scarcity of capital, but also partly because, owing to the 
absence of the tenure of land in fee simple, few are able 
to give any satisfactory security for money borrowed. 
This is a curious illustration of the tendency of the ten- 
ure of land to exert an influence on all the economies of 
a community. Free trade in land tends to freedom in 
every thing else. 

§ 154. It may seem to some that the fact that the rate 
of interest may differ very considerably in two neighbor- 
ing countries at the same time, as is the fact in respect 
to England and Holland, is inconsisteiit with what we 
have said of the cosmopolitan character of capital. Why, 
it may be asked, should a Hollander lend his money at 
home at two per cent, when he can obtain for it in the 
English funds three and a quarter per cent .'' The answer is, 
that this is not by any means a national affair. The same 
thing is just as likely to occur in respect ta different parts 



212 ECONOMICS. 

of the same country, as between different nationalities. 
There have been times when the current rate of interest 
in Illinois was fifty per cent, while in Massachusetts it 
was six per cent. And yet the lender in Illinois certainly 
incurred no extraordinary risk. The explanation of the 
phenomenon is found, not in any relation of capital to 
nationality, but in the fact that a capitalist always pre- 
fers to have his capital near him, under his own eye, and 
under social conditions with w^hich he is familiar. Es- 
pecially he prefers to invest it under laws which he un- 
derstands, and with the administration of which he is well 
acquainted. In such circumstances he would rather 
accept less interest, than make an investment in circum- 
stances which he regards as less desirable. It is an ad- 
ditional consideration applying to foreign investments, 
that in case of a war between his own country and that in 
which the investment is made, payment would be sus- 
pended during the war. This of course would be re- 
garded as a very great objection to a foreign investment, 
unless the peace of the two countries was regarded as in 
a great degree assured. Undoubtedly the danger of the 
occurrence of war between the different nations of the 
earth is a very great obstacle to the free circulation of 
capital. The nations of the world can never enjoy the 
full benefit of the universal human relations of capital, 
except on condition of maintaining universal peace. 

§ 155. The rate of interest always declines with the 
gradual progress of a com7nunity in wealth and general civ- 
ilization. This is abundantly established by reference to 
the past history of civilization. The fact is doubtless 
partly owing to diminished risk. With the. healthy pro- 
gress of society trade becomes more regular, systematic 
and sure in its results, governments become more stable 
and just, and are more- skillfully administered for the 
protection of all the rights of property. But this is cer- 



INTEREST. 213 

tainl}/ not a complete account of the matter. It seems 
to be a great law of human progress, that of all the ele- 
ments that enter into the economic system of the world, 
capital is that which increases most rapidJy. If a savage 
enters on the attempt to become a civilized man, with 
nothing but his bow and arrows to begin with, he must 
first accumulate a surplus over self-support, to buy a 
rifle. With that greatly improved instrument, he will be 
able to accumulate much more rapidly than before. In 
a short time he will not only be the owner of a rifle, but 
he will have besides an accumulated surplus by which he 
will be able to procure the means of rendering his labor 
still more efficient, and his accumulation still more rapid. 
The same principle seems to hold for every successive 
step of his progress. Each new invention, each new 
natural force that is made the helper of his labor, not 
only compensates for the outlay of capital it has cost, but 
greatly multiplies his surplus for still further and more 
important investments. In this whole matter, the Scrip- 
ture is constantly fulfilled : "To every one that hath shall 
be given." With each new triumph of man over the 
powers of nature, other and greater triumphs become 
possible, which before were quite impossible, and we can 
set no limits to the possibilities of the future except the 
limits v^ithin which gravitation and inertia confine us. 

But capital obeys the same law of supply and de77iana 
which prevails everywhere in the economic world. If one 
element increases more rapidly than any other, it will 
inevitably decline in price. This one consideration fully 
explains the certain and steady decline of the rate of 
interest in all countries of growing w^ealth and civiliza- 
tion. It is the prodigality of nature's provision for all 
man's prospective wants, and for his highest possible 
development. 

§ 156. Some of the most important consequences of 



214 ECONOMICS. 

this law we are not prepared to examine at the present 
stage of our inquiries. There is however one important 
relation of the law, which it is proper to point out in 
this place. This sure decline of the rate of interest sug- 
gests the thought, that it must at length reach a point be- 
yond which the gain to be derived from capital would 
become so small, that there would be no sufficient in- 
ducement for any further etfort at accumulation, and that 
consequently capital would cease to increase^ and the rate 
of interest would becojne stationary. We are not disposed 
to deny that at some distant future point of human pro- 
gress, there may occur a maturity of civilization over this 
whole earth, such as would produce a stationary condi- 
tion both of capital and interest. But a little considera- 
tion will convince us, that that point is yet so remote in 
the distant future, that the prospect of its being reached 
should awaken neither hope nor fear. There may be 
for aught we know a limit to the solar system, beyond 
which inevitable disaster awaits it. But the danger is 
too deep in the dark unknown future, to awaken any 
present apprehension. The danger of any such disaster 
in the economic world can hardly be more imminent. 

In considering this matter that cosmopolitan nature of 
capital which we have already demonstrated, should not 
be forgotten. In order that this minimum possible rate 
of interest should be reached, the demand of the whole 
world for capital must be far more perfectly supplied 
than it is at present supplied in such countries as England 
and Holland, where the rate of interest is lowest. At an 
interest of three and a quarter per cent in one of these 
countries, and two per cent in the other, in transactions 
involving no risk, the accumulation of capital is still 
prosecuted with great zeal and energy. How much 
lower point it may reach without causing a cessation of 
accumulation we have no experiment by which it can be 



INTEREST. 215 

determined. But the experiments with which we are 
here furnished are quite sufficient to prove, that the in- 
crease of capital cannot be arrested till the demands of 
the whole human family are far better supplied than the 
demands of either of those countries are at the present 
time. On the supposition of a long future of peace over 
the whole earth, and of such reforms in the governments 
of the world as will render property as secure everywhere, 
as it now is in those two favored countries, this world- 
wide demand for capital could not be so completely sup- 
plied except in some exceedingly distant future age. 

§ 157. There is another consideration which tends to 
postpone the day at which such a stationary condition 
of the economic forces of the world can occur to a still 
more distant future. As the interest on capital is di- 
minished, the demand for it jnust be increased in a very 
rapid ratio. The case is closely analogous to the in- 
creased demand for labor which, we have shown, results 
fromi the use of labor-saving machinery. The first effect 
is that labor is dispensed with, and the demand for labor 
diminished. But the immediately succeeding effect is, 
that millions are to be supplied with the cheapened 
product, where before only thousands could enjoy it, and 
this increased demand far more than compensates for the 
diminished amount of lal;)or requisite to produce a given 
quantity. The aggregate result is, as we have seen, an 
almost unlimited increase of the demand for labor. 

So is it in the case under consideration. A vast 
increase of capital would be necessary to supply all 
which would be demanded, for example in the United 
States, at the present rate of interest. But if the rate 
of interest should decline, as it surely will, by the regular 
process of increasing wealth and prosperity, to two or 
three per cent, who can compute the vastness of the de- 
mand for the use of it which would come with those low 



2l6 ECONOMICS. 

rates of interest? How many and how vast would the 
enterprises be, which would then become practicable and 
easy, which at the present rates of interest are not to be 
even for- a moment thought of? Who can compute the 
amount of capital which would be absorbed in enterprises 
which in the present state of things would be quite chi- 
merical, and yet in the state of things supposed would be 
easily rendered actual ? The same would be true over 
the whole world. In such a state of things enterprises 
would everywhere be undertaken and carried through, 
which in our times are never thought of. It would ex- 
pose one to ridicule barely to suggest many an under- 
taking, which in such circumstances would be far more 
easily accomplished than the Suez Canal or a continuous 
line of railway across the continent of North America in 
our own times. 

At those low rates of interest the possible uses of 
capital would become so numerous and the amount 
necessary to satisfy them so great, that a very great in- 
crease of the capital of the whole world would hardly have 
an appreciable influence on the general rate of interest. 
Ever so great an increase of capital in one country 
would be like a flood in a single river, causing it perhaps 
to overflow all its banks, but having no sensible influence 
on the level of the ocean. The capital of the world is 
oceanic, as truly as its medium of exchange. When the 
rate of interest for the whole world shall have been 
brought down by general prosperity to two per cent, the 
additional increase of capital necessary to reduce it to 
one and a half would run far up toward the infinite. 
Those who are alarmed at the prospect of a coming 
stationary period are certainly troubled with groundless 
apprehensions. 

§ 158. It may be suggested in reply to the conclu- 
sions of the previous section, that they are founded on 



INTEREST. 217 

suppositions not likely to be realized, that the world is not 
likely to have a long future of universal peace, that the 
governments of the world are not likely to be so reformed 
as to make rights of property as secure everywhere, as 
they now are in the most civilized countries. Then 
surely we may dismiss all our apprehensions about the 
occurrence of a stationary condition of economic forces. 
Without the fulfillment of those conditions, it never can 
come. Meanwhile it is certain the condition of the 
world is becoming from generation to generation more 
favorable to great economic enterprises, and inviting 
openings are presenting themselves for the investment 
of capital in many and remote lands. If some countries 
are becoming gorged with capital, and do not present 
at any particular time satisfactory modes of investment, 
the world is before the capitalist, and the capital which 
will not yield him interest in his own country will not fail 
to find a remunerating demand elsewhere. 

Nor is there any reason to suppose that the resources 
of labor-saving ijiveniion are yet exhausted. When we 
consider the demands for more capital which have been 
created by the inventions of the last century, we have 
surely little cause to apprehend any lack of demand in 
coming ages. Who is able to compute the time requisite 
to accumulate a sufficient amount of capital to give to 
the whole world the full benefit of the inventions of the 
last century ? When will the world be rich enough to 
procure for itself the advantages of the railway system 
for all its peoples, as they are now enjoyed by a few of 
the more civilized nations of the world ? There can be 
no reason to fear that the emigration of capital from 
countries where it is superabundant, and the use of it in 
multiplying labor-saving machinery to supply the wants 
of the world, will not so sustain the rate of interest for a 
long time to come, that there need be no apprehension 
lo 



2l8 ECONOMICS. 

that it will touch a lower point than it has already reached 
in a few favored countries. 



CHAPTER VIII. 
Rent, 



§ 159. The word rent is used with a good deal of ^ 

latitude of signification. It is not only applied to land 

and all permanent improvements of it, but to many other 

of the more permanent forms of fixed capital. The 

peculiarities however which make it necessary to give it 

a separate consideration in this treatise pertain only to 

land and the various permanent structures reared upon 

it — to land in actual use for the various purposes for 

which it is employed in the processes of production and 

exchange. In our definition we shall confine the word 

within these limits, taking no account of various other 

, forms of property to which it may be loosely applied. 

I Definition. Rent is the compensation received for the 

J use of capital invested in land. 

As no human possession can be more secure from 
liability to loss than capital invested in land at its mar- 
ket value, the compensation received for it will be for 
use only, without any consideration of risk. It cannot 
therefore be higher than interest at the lowest rate, on 
the present value of the land. The nature of the case 
would lead us to expect that it would be even lower than 
the rate of interest, in cases in which the security is sup- 
posed to be absolute. A presumption always exists, 
that the value of the land will be steadily enhanced with 
the progress of society. For this reason a landholder will 
always be willing to receive a lower rate of interest for 



RENT. 



219 



his capital invested in land, because that capital itself is 
presumed to be increasing in value. In addition to this 
in some countries, as for example in England, the land 
owner enjoys considerable advantages of respectability, 
dignity and social position, for himself and his family, 
which all men value, and for the sake of enjoying which, 
he is willing to invest his capital at a lower rate of inter- 
est than he would expect from other investments. 

It is also true that the national passion for owning 
land which so permeates all English thought, custom aod 
literature, is not entirely extinct even yet in any of the 
peoples that are off-shoots of England, that still use the 
English language, and read English books. Perhaps 
even more than this is true. Perhaps a desh-e to own 
land has its seat in human nature itself. Perhaps it is 
natural for man as man, to feel a peculiar sense of dig- 
nity, independence and personal importance, when tread- 
ing on his own soil, and sitting beneath his own roof. 
We suspect that men universally have a pleasure in the 
ownership of land, which renders them willing to invest 
capital in land with the expectation of receiving from it 
less value in return, than they would demand from most 
other modes of investment. 

§ 160. One question relating to rent has received a 
great deal of attention from economists, and occasioned 
much diversity of opinion. That question respects the 
cause of the increase of the re^it of land which always at- 
tends an increase of population and wealth, unless that 
increase is accompanied by the introduction of agricul- 
tural products from more remote sources of supply. The 
theory of the subject now generally received by the lead- 
ing representatives of English economic thought is that 
published in 181 7 by David Ricardo, in his Principles of 
Political Economy and Taxation. It has been generally 
regarded since that time by writers of the English school. 



220 ECONOMICS. 

as a complete solution of the question. It may be 
succinctly stated thus : The rent of any piece of land at 
any time will be precisely equal to the difference between the 
net value of its products and the net value of the product 
of the poorest land, whose products barely pay the expense 
of cultivation, without a?iy ?'ent. The reasoning by which 
it is sustained is something like the following. In the 
first settlement of a country, there can be no rent, for 
there will be more land of the best quality than can be 
cultivated, and therefore any one can have as much land 
as he pleases without rent. When all the land of best, 
quality has been brought into cultivation, and by reason 
of the increased population proves inadequate to furnish 
the necessary supply of agricultural products, then poorer 
lands will be brought into use. At the same time lands 
of the best quality will begin to pay rent, because one 
would be willing to pay for the choice between land of 
the first and second quality the difference of the produc- 
tiveness of the two. When the supply of the second 
class is exhausted, land of third class fertility will be 
entered on, the second class will bear rent, and the first 
class still higher rent, and so on, the first class rising 
higher and higher as the increasing demand for agricul- 
tural products forces cultivation downward to poorer 
and still poorer lands. The answer which this theory 
gives to the question under consideration is, that the 
cause of the increase of price of agricultural products is 
the necessity of deriving them from poorer lands, and 
therefore at an increased cost of production. 

§ i6i. With \h2ii first settlement of a coujttry, in which 
Ricardo's theory assumes that a certain state of facts 
must have existed, we were ourselves familiarly ac- 
quainted for many years, and are all able to bear witness 
of our own personal knowledge. The case furnishes a 
striking illustration how ill men succeed in determining 



RENT. 221 

on theoretic grounds, what facts must have been in a 
given case, while they are quite ignorant as to what they 
really were. What actually occurs in such circumstances 
contradicts what the theory assumes at every point. The 
notion of a state of things in which cultivated lands will 
bear no rent, is as fabulous as the centaur or the mer- 
maid. Of two tracts of land adjoining each other, one 
would be under cultivation, the other not. Both would 
be of equal and unsurpassed fertility. The tract under 
cultivation would pay a rent of one third of the crop. 
The zero point from which rent is to be reckoned has no 
existence in fact. The reason is obvious ; any piece of 
land that bears cultivation will pay a rent equal to the 
interest on the capital invested in it, making allowance 
of course for those considerations which reduce the rate 
of interest on capital invested in lands below the general 
average. These new lands under cultivation will pay a 
rent equal to the capital invested in them at this rate of 
interest. The Creator does not give us land in a state 
of readiness for the plowman and the seed-sower. It 
must be subdued, rank and useless natural growths must 
be removed at the expense of no small amount of labor, 
the whole must be surrounded by an enclosure, and fur- 
nished with strictly necessary buildings. The prairie 
lands of the upper Mississippi valley probably presented, 
in their natural state, as few obstacles to cultivation as 
any which have been subdued by man. Yet even they 
could not be fitted for cultivation 'for a less sum than 
six dollars to ten dollars per acre, including of course 
the payment made to the government for the land itself. 
This investment must be made in many instances, when 
the interest of money is as high as fifty or even sixty 
per cent per annum. Men who are without capital 
would be glad of the opportunity of paying one third of 
the crop for the use of the land in a state of readiness 



222 ECONOMICS. 

for seed-sowing, through equally good lands adjoining 
them were unused. 

§ 162. Neither is the theory more successful in indi- 
cating the successive steps by which lands of different degrees 
of fei'tility are brought into cultivation. A great many 
ether considerations besides natural fertility influence 
the choice of first settlers. The land is nearly all cov- 
ered with a deposit of rich mould, resulting from the 
vegetable decay of ages, and will produce a few luxuriant 
harvests before its permanent quality becomes apparent. 
A forest of timber or a spring or a stream of water will 
often have far more influence on the choice, than the 
permanent qualities of the land. Mr. Henry C. Carey 
rejects Ricardo's theory of rent, but in his statement of 
facts, he is hardly more fortunate than Mr. Ricardo's 
theoretic assumptions. He represents that cultivation 
almost invariably begins on the comparatively barren 
hill sides, and makes its way slowly and gradually down 
to the rich alluvion of the valleys, where the most fertile 
lands are found. He can hardly have been an accurate 
observer of farming in new settlements, or he would not 
have made such statements. The circumstance which 
affects*the choice of the new settler more than any other 
seems to be, the cost of preparing the land for cultiva- 
tion. It may happen that the very best land may also 
be that which requires a very small outlay to subdue it. 
Or it may happen that the choice falls on a well-drained 
hillside, which can be very easily subdued, and will bear 
a few good crops, but will not be permanently fertile. 
It frequently happens also that some of the richest lands 
are encumbered with such natural obstacles to cultiva- 
tion, that the rent they will yield will not pay the cost of 
subduing them, till the community is already far advanced 
in wealth and population. Some of the best lands on 
earth are lying quite uncultivated, awaiting the time 



RENT. 223 

when rents shall have advanced to such a point as to 
justify the outlay of capital necessary to subdue them. 
All the facts of the case entirely justify and sustain our 
reasonings and conclusions respecting the ownership of 
land. It is to be regarded as fixed capital, and rent is 
compensation for its use. 

§ 163. Ricardo's theory of rent radically fails by sub- 
stituting cause for effect and effect for cause. The real 
cause for the increasing price of agricultural products, 
as wealth and population increase, is the constantly 
growing demand for them. Their price would rise and 
equally rise, if there were no poorer lands that could be 
cultivated, or if the supply of them must be perpetually 
derived from the same unchanging sources. Increasing 
demand always occasions increased price. If the amount 
of capital needing to employ laborers is large, and the 
number of laborers that can be emplo3''ed is small, cap- 
italists will bid against each other under the apprehen- 
sion of failing to get the laborers they need, and raise 
the price of labor. So as the number of mouths to be 
fed is multiplied while the supply of food remains sta- 
tionary, men will be apprehensive of failing to obtain a 
supply, bid against each other and raise the price with- 
out any consideration whatever of the sources from which 
the supply comes. The sources of supply and the cost 
of production may remain absolutely unchanged, yet if 
the demand is increasing, while the supply is stationary, 
men will become apprehensive, and their apprehensions 
will have an effect on the price. This is the one cause 
of the rise of rents with increasing wealth and popula- 
tion. // is exactly analogous to the rise of the rent of land 
to be used for purposes of trade vi the heart of a great city. 
With the growth of the population and trade of the city, 
the demand for those lands for certain uses which can- 
not be supplied by any other lands, constantly increases, 



224 ECONOMICS. 

and the price rises accordingly, and this increase* of 
price will be limited only by the number and wealth of 
those that want it. 

§ 164. On precisely the same principle the rent of land 
used for agricultural purposes is raised^ by the increase of 
wealth and population. The increased rate of rent does 
not depend on population alone but, as in the case of 
land used for purposes of trade, on wealth also. If the 
people were all too poor to pay any more for agricultural 
products than they had been paying, they could bear no 
increased price, it would produce starvation. If the 
amount of capital in any country is small in proportion 
to its population, rent will be low however densely.it may 
be peopled. But if population and wealth increase, an 
advance in the rent is inevitable. Increased demand 
for agricultural products will compel increased rent. 
Poorer lands, if any exist not hitherto cultivated, will be 
likely to be brought into cultivation. Entering on those 
poorer lands will however be the effect of the increased 
price of agricultural products, and not the cause of it. 
Lands will be brought into cultivation perhaps, which 
had lain neglected for ages, because agricultural products 
are so dear and rents so high, that these lands will now 
make a good return for the capital expended in reducing 
them to cultivation. Rent is not high because these 
lands are cultivated to produce food, as Ricardo's theory 
would have it, but these lands are under cultivation be- 
cause the demand for agricultural products is so great 
that they will yield a rent which will satisfactorily re- 
munerate the capitalist for subduing them. Rents would 
have been even higher than they are, if there had been 
no poorer lands to be brought into cultivation, and no 
long neglected lands which could be rendered fit for til- 
lage by large outlays of capital. 

§ 165. Many writers have made much of " the law of 



RENT. 



225 



diininishi7ig returns " in connection with rent. We have 
hitherto said nothing on that subject, because we think 
the principle so obvious as hardly to require statement, 
much less argument It seems to us that any farmer of 
ordinary intelligence knows, that, up to a certain point, 
the more he lays out in the judicious improvement and 
cultivation of a piece of land, the larger returns he will 
get, in proportion to the outlay ; but that beyond that 
point, though the product will perhaps still be increased 
by additional outlay, it will not be increased in propor- 
tion to the cost.. The more he expends, the less his 
percentage of profit will be. This is the law of diminish- 
ing returns. It is also true, that as rent rises, it becomes 
profitable to expend more in the cultivation. This is 
because the increased demand for agricultural produce 
enhances the price, and thereby compensates for the di- 
minished quantity that is procured by a given outlay. In 
a given state of the market, five laborers will obtain from 
a given farm produce to the value of one thousand dol- 
lars. In the same state of the market, the produce of 
ten laborers would only be worth fifteen hundred dol- 
lars. But if by increased demand agricultural products 
have risen in price, so that what before sold for fifteen 
hundred dollars, would now command two thousand 
dollars, it will be as profitable to employ the labor of 
ten men, as it was before to employ but five. That is, 
the advanced price of agricultural products makes it 
profitable to employ a greater number of laborers for a 
given amount of product. The same holds of rent. 
According to Ricardo's theory agricultural products are 
dearer and rent higher because it costs more to produce 
a given amount. No, say we, they are dearer only, be- 
cause there is a larger demand for them, and because 
they are dearer, it is profitable to produce them at a 
greater outlay of both rent and labor. They are not 
10"^ 



226 ECONOMICS. 

dearer because an additional supply is produced at 
greater cost, for they would be much dearer than they 
are, if no additional supply could be produced. The 
greater cost of the additional supply has no tendency 
whatever, either to raise the price of agricultural pro- 
ducts, or to increase the rent. Both these phenomena 
are caused only by increased demand for agricultural 
products, and instead of being intensified they are miti- 
gated by the additional supply, though at increased cost. 
§ i6$a. The most important consequence deduced 
from Ricardo's theory of rent, is the doctrine that " re/i^' 
is not an element of the cost of obtaming agricultural pro- 
duce.*^ Mr. Fawcett asserts this paradox, and quotes 
Mr. Buckle as saying, that this proposition " can be 
grasped only by a comprehensive thinker." It really 
seems to us that an intellect not very comprehensive is 
quite competent to perceive that it is not true. In proof 
of this doctrine the supposition is made, that by an act 
of the government all rents were made free. Such an 
act of wholesale spoliation it is claimed would make agri- 
cultural products no cheaper than before. It is true that 
if the same population remained with the same wealth 
wherewith to purchase, the same demand would exist as 
before. But these conditions would not be fulfilled. 
The hundreds of thousands whose capital is invested in 
lands, and the still greater number of thousands depend- 
ent on them for their employment and their bread, would 
be deprived of their living and reduced to starvation, be- 
cause they had nothing with which to purchase food. 
Their necessities would therefore be withdrawn from the 
demand, and the price would fall. There is just as 
much propriety in making the supposition, that by an act 
of the government the wages of agricultural labor were 
abolished, and laborers compelled to till the soil without 
compensation. If this could be accomplished and agri- 



RENT. 227 

cultural laborers still live, it would equally be true that 
agricultural products would be rendered no cheaper by 
this gigantic act of spoliation. The same demand would 
remain to be supplied, and the price would remain un- 
changed. Will these gentlemen therefore allow us to 
make the inference, that the labor employed in the culti- 
vation of the land or rather the wages which it receives 
" is not an element of the cost of obtaining agricultural 
produce?" It is quite true that if the holders of agri- 
cultural products could bring them into the market, with- 
out having incurred any expense either for rent or wages, 
other things remaining unchanged, they would be able 
to obtain the same prices for them as now. But such a 
supposition is fundamentally contradictory to the very 
nature of ownership. They are the owners of what they 
offer in the market, because they have paid both rent 
and wages, and he who purchases of them must of neces- 
sity repay not only wages but rent also. 

§ 166. Mr. Fawcett speaks of the supposed act of 
government making all rents free as the " abolition of 
rent.'' Such an act of tyranny would not be the aboli- 
tion of rent. It would be simply taking the rent from 
the owner of the land and giving it to the farmer that 
for the time being tilled it. Suppose a neighbor of that 
farmer, perceiving that great gains could be realized by 
cultivating land without paying any rent for it, should 
apply to the fortunate incumbent for the use of half his 
farm. The prompt reply would be, you may have it if, 
as a private transaction between you and me, you will 
pay me a fair rent for it. The farmer understands very 
well that the tyranny of the government has despoiled 
the owner of the land for his benefit. Why call such a 
transaction the abolition of rent ? 

No government can abolish rent any jnore than wages. 
We have showm that land becomes private property only 



228 ECONOMICS. 

because of the labor bestowed upon it to render it an 
instrument of human well-being. It is capital. That 
capital has descended to the present owner. Food can 
no more be produced without the use of the capital in- 
vested in the land than without the labor that tills it. 
Nor is this all. A farm is in an important respect 
analogous to the human body. As the body constantly 
tends to decay, and can be kept in vigor only by con- 
stant repair, so a farm constantly tends to revert to that 
natural state from which it was redeemed by labor and 
capital, and more labor and capital must constantly be 
employed to preserve it in a state of vigorous productive- 
ness. The tenant farmer has no interest in preserving 
the permanent productiveness of the farm, and will make 
no outlay which will not conduce to the abundance of 
the harvest immediately expected. Buildings will go to 
decay, and all other permanent improvements will be 
neglected and deteriorated. The original outlay neces- 
sary to bring a farm into cultivation must in the course 
of a half century be renewed two or three times, and at 
greatly increased cost. New and better dwellings and 
out-buildirigs must be provided, drainage must be re- 
sorted to, more permanent enclosures must be con- 
structed, and generally the farm must not only be saved 
from decay but brought up to such a degree of cultiva- 
tion, as the present state of agriculture demands. A 
temporary tenant has no motive to provide for any of 
these things. Ownership and rent only furnish the 
requisite motive. Lands that have no owner will rapidly 
revert to their natural condition, and cease to produce 
food for man and beast. Rent is therefore as necessary 
and inevitable an element in the cost of the products of 
the soil, as the labor that annually tills it. The man 
who brings the produce of the farm to market, must 
equally demand compensation for rent and wages, and 



RENT. 229 

the amount he will be able to obtain will depend on the 
population and wealth of the community relative to the 
supply of his products. 

§ 167. There is another proof equally strong that 
rent is an " element in the cost oi obtaining agricultural 
produce.'' It is an admitted fact, that England has 
within a comparatively few years added nearly one-fifth 
to her population, and yet during that period the price 
of agricultural products has scarcely advanced at all. 
It is also admitted, that the reason why the price of food 
has remained nearly stationary is to be found in the fact, 
that large suppHes have been imported from other coun- 
tries. These supplies have been largely obtained from 
our own country, Why is it then that agricultural pro- 
ducts from the interior of North America, transported a 
thousand miles by land, and three thousand by water, 
are yet offered in the London market at prices so low, 
as to prevent any advance in the price of food resulting 
from so great an increase of population ? It is not be- 
cause these supplies are derived from richer land. The 
produce of wheat per acre in England is probably greater 
than in the United States. It is not because they are 
the produce of cheaper labor. The wages of agricultural 
labor in the United States are probably more than twice 
as great as in England. It is because those supplies 
are derived from lands whose rent is scarce one-fifth 
what is paid for lands of like productiveness in England. 
The one cheap element in the cost of procuring American 
agricultural produce is rent. Every Englishman who in 
these days eats comparatively cheap bread, should grate- 
fully remember the low rent of the United States. When 
land rents in the region around Chicago shall approxi- 
mate, as at no very distant day they will, the rents of 
land around London, Englishmen must either eat very 
dear bread, or derive supplies from other fertile regions 



230 



ECONOMICS. 



not yet invaded by accumulated wealth and dense pop- 
ulation. Rent is an element in the cost of obtaining 
agricultural produce. 

§ i68. It is also noticeable that Mr. Fawcett himself 
does not after all derive the doctrine to which we object from 
Ricardo's theory of rent^ but from the consideration that 
if all rents were free, the same demand for food would 
still remain, and therefore prices be unchanged. This 
is admitting precisely what we contend for, that the fun- 
damental element in the case is the demand which results 
from a given condition of wealth and population. We 
trust therefore that it is apparent to all readers, that 
Ricardo's theory of rent is not sustained by the facts 
which occur in the origin and progress of land culture, 
that it depends for all its plausibility on the fallacy of 
assuming that to be a cause which is only an effect, and 
that the chief consequence which men have sought to 
deduce from it, and for the sake of which the theory it- 
self has been for the most part defended, contradicts 
fundamental natural law and is quite erroneous, and that 
it is not even deducible from the theory itself We can- 
not refrain from expressing our wonder, that this theory 
and the paradoxical inference which men have sought to 
deduce from it, can have for fifty years maintained their 
position as fundamental laws of the science. We can 
only explain the fact by the consideration, that the gen- 
eral belief of the doctrine that rent is not an element in 
the cost of agricultural produce is fitted to afford power- 
ful support to those land monopolies which have been 
very prevalent in European history, and one of which 
still prevails in respect to the tenure of almost all the 
lands in Britain. Of this subject however we shall speak 
hereafter. 

§ 169. It is also noticeable that the same fallacy is re- 
sorted to in explaining the p7'ice of minerals when the rela- 



RENT. 231 

Hon of demand to supply is changed. If for example the 
demand for iron should at any time increase beyond 
what existing mines could supply, or if demand remain- 
ing the same the supply afforded by existing mines should 
diminish, the price would rise. It is claimed that the 
reason of this rise in price is to be found in the fact that 
less productive mines must be wrought, requiring a 
greater amount of labor and capital to obtain a given 
amount of metal. This is incorrect. The price has 
risen only because the demand relative to the supply has 
increased. The price of the metal would have been still 
more increased if there had been no other mines that 
could be resorted to. Less productive mines are wrought 
because the increased price of the metal makes it profit- 
able to work mines which at former prices could have 
been worked only at a loss. The working of a less pro- 
ductive mine is therefore effect and not cause. The 
principle will hold in all similar cases. Ricardo's theory 
of rent will be found to involve the same fallacy wher- 
ever it is applied. 

It is quite correct however in certain cases to speak 
of the cost of production as having been increased, or of 
the cost of living as having been advanced by the neces- 
sity of deriving supplies from more costly sources. If by 
the utter failure of the coal supply of England, she were 
compelled to obtain all which she uses from the coal 
mines of North America, the costliness of her manufac- 
tures would truly be said to be caused by the necessity 
of deriving supplies from more costly sources. But if, the 
coal supply of England remaining unimpaired, the de- 
mand for coal should in any way be so much increased 
and the price of it so much raised, that it could be car- 
ried from North American mines, and sold in England 
at a profit, it would surely not be sound philosophy to 
ascribe the enhanced price of coal in England to the 



232 ECONOMICS. 

necessity of transporting it across the Atlantic. The 
price would have been much more enhanced, if there had 
been no American coal to transport. 



CHAPTER IX. 



Profit, 

§ 170. Another form which the gains of the capi- 
talist assume is profit. It is next to be considered. 
/ Definition. Profit is the compeiisation which the capi- 
' talis t receives from employing his capital in any process of 
production or exchange. 

It differs from interest in embracing a greater num- 
ber of elements. Interest is compensation for the use 
of capital, and such ordinary risk as one must for the 
most part incur when he entrusts it to another. Profit 
embraces interest on the capital employed, and in ad- 
dition to it compensation for the peculiar risk which is 
incidental to the modes in which capital is employed, 
and for the labor, skill and pains-taking of the capitalist 
in superintending and directing the process. The inter- 
est element in profit of course varies with the variations 
of the rate of interest. A capitalist will expect, in addi- 
tion to compensation for the risks of trade, and his own 
personal services, such a rate of interest as his capital 
would command in 'the market. He will of course not 
take into the account the minor almost daily fluctuations 
of the rate of interest which are liable to occur, but the 
more permanent changes in the interest market will be 
taken into the account in determining what rate of profit 
will be satisfactory. Any capitalist would be willing to 



PROFIT. 233 

engage in any business with a prospect of much less 
profit when the current rate of interest was five per cent 
than when it was ten per cent. 

Of course profit 7nust closely sy77ipathize with interest 
in that steady decHne of the rate which, as has been 
shown, is always occasioned by the increasing wealth 
and civilization of a community. As society becomes 
more mature, it will not only become easier for laborers 
possessing skill, industry and integrity, to borrow what 
they need in aid of their labor, but all commodities into 
the production of which capital enters will be produced 
at lower prices, or at least brought more within the reach 
of all classes of the community, in consequence of the 
abundance of capital and the smallness of the rate of 
profit. As already admitted for reasons shown, agricul- 
tural products are not subject to this law. 

§ 171. In this as in all other departments of our sci- 
ence competition is the sup7'eme law. It is frequently as- 
serted that competition will reduce the rate of profit in 
all the different modes of employing capital to a common 
standard. This cannot be admitted. It would be true 
if all the other elements that come into consideration in 
choosing the mode in which one's capital is to be em- 
ployed were equal. But they are far from being equal. 
Some modes of employing capital necessarily involve 
great risk, others very little. If capital is to be em- 
ployed in manufacturing gunpowder or in purchasing a 
steamboat to run upon our Western rivers, it will be ex- 
posed to great risk, and no man will make such an in- 
vestment without a prospect of profits large enough to 
insure him against this risk. Other modes of employing 
capital are very numerous in which no such extraordinary 
risk is incurred. Men can afibrd to engage in such 
branches of trade at a much lower rate of profit, and 
competition will therefore settle the rate of profit in them 



234 ECONOMICS. 

at a much lower point. Before engaging in any branch 
of business, prudent men will insist on a prospective rate 
of profit, which will fully insure them against all its fore- 
seen risks. 

Some modes of employing capital compel the cap- 
italist to engage in occupations which are disagreeable^ or 
are not held in much respect and honor by the community. 
Few capitalists will desire such investments, and conse- 
quently those who are willing so to invest their capital 
will encounter very little competition, and therefore ob- 
tain compensation for the undesirableness of the occupa- 
tion itself in other respects by a high rate of profit. It 
is to be deeply regretted that not a few capitalists are 
found who are willing to accept high profit as a com- 
pensation for violated conscience, and are therefore will- 
ing to invest their capital in producing that which is 
destructive of the prosperity, the happiness and the vir- 
tue of those from the indulgence of whose appetites their 
profits are derived. 

Other employments of capital are agreeable aftd re- 
garded by the community as conferring dignity and respect- 
ability on those who successfully engage in them. They 
are apt to acquire a high social position for themselves 
and their families. Men are often willing to invest their 
capital in such employments for very little profit above 
bare interest and risk. They regard their personal ser- 
vices as in a great degree compensated by the dignity, 
respectability and desirable mode of life which they en- 
joy. Of course there is great competition for such in- 
vestments, and the rate of profit is very low. 

§ 172. These considerations are quite sufficient to 
show that so far is it from being true that competition 
reduces the rate of profit in different modes of employing 
capital to a common standard, it must necessarily result 
in producing very wide diversities in this respect. One 



PROFIT. 235 

law does however prevail through every department of 
trade. Every mode of investing capital does find its 
own level. // does establish a rate of profit which is natural 
a?id proper for itself. Competition will clearly determine 
how much weight all the advantages and disadvantages 
of any investment have in men's minds, and what rate 
of profit will be accepted in each particular investment. 
Whenever in any case profits are found to exceed that 
natural rate, capital will have a tendency to leave other 
modes of employment and flow towards that in which 
the excess exists, and will continue to flow, not till all 
profits are equalized, but till each mode of investment 
has its own proper rate of profit, after all advantages and 
disadvantages have been duly considered. There is not 
equality but a constant tendency to equilibrium of rates 
of profit. 

This law is not however so stringent as not to leave 
room for wide diversities of the rate of profit in different 
estabhshments employed in the same trade. Personal 
characteristics may exert very great influence. Superior 
sagacity, wisdom and skill in management may obtain 
ample compensation by raising the profit far above the 
general average, and this sort of superiority can only be 
reached by the competition of other men possessing 
equally eminent qualities in the management of affairs. 
No free competition can deprive any man of the full ben- 
efit of his own wisdom and skill. 

In an order of things in which competition is not in- 
terfered with by any impolitic legislation, it will deter- 
mine with unerring accuracy what branches of industry 
may be most profitably pursued in afiy place at a giventijne. 
If any commodity is offered in the market at a cheaper 
rate than that at which it can be manufactured there and 
then, it is proof conclusive that the capital of that com- 
munity cannot be profitably employed in manufacturing 



236 ECONOMICS. 

it. Ine reason why it cannot is, that it is already em- 
ployed in producing something else which yields a higher 
profit. Any legislation which so obstructs the introduc- 
tion of that commodity into the market, as so to raise 
its price that capital can be profitably employed in pro- 
ducing it, is simply compelling the people to pay more 
for that commodity than its real value, and creating 
artificial motives to induce capitalists to withdraw from 
more profitable investments and engage in those that are 
less profitable. It is taxing the community to pay cap- 
italists for wasting their capital. 

§ 173. All this goes on the supposition that the in- 
vestment of capital is left to be determined by perfectly 
free competition. In speaking of wages, we were at con- 
siderable pains to ascertain to what extent the influence 
of competition may be modified by combinations to resist 
it. It is equally important here to inquire to what extent 
the same natural force may be modified or coimteracted by 
co7nbinatioiis of capital. It is alleged that where a vast 
fortune is owned by one person and therefore managed 
by a single intellect and a single will, such a capitalist 
may and often does obtain the control of the entire sup- 
ply of some commodity for perhaps a whole nation, and 
thus become able to exempt it entirely from the influ- 
ence of competition, and set his own arbitrary price upon 
it. It is also asserted that where this cannot be done 
by a single capitalist, it can be by a combination of 
capitalists whose interests are common. It is plain 
that the best possible protection of the community 
against such oppressive combinations is the widest 
freedom of trade. If an exclusive commercial system 
falsely called "protection of domestic industry " confines 
the supply of some commodity to a small number of 
easily accessible sources, as for example to a single 
country^ a monopoly of that commodity in one or a few 



PROFIT. 237 

hands is rendered easy, and the community may be ex- 
pected to suffer from such exactions, and a community 
determined to maintain such legislation should utter no 
complaints of being oppressed by combinations of capi- 
tal. " Protection " of the producers of a commodity thus 
, monopolized is protection of a combination of grasping 
capitalists united in a league to practice gigantic exac- 
tions upon a community, whose exclusive legislation has 
rendered it powerless to resist them. It is a strange 
state of things and not very agreeable to contemplate, 
when a duty nearly prohibitory on the one hand dis- 
countenances the introduction of the coal of British 
America into the seaports of the New England and Mid- 
dle States, while on the other hand a combination of the 
Pennsylvania coal companies is assisted by that " Protec- 
tion," for months and years in succession, to exact from 
ten millions of the American people such prices for their 
coal as their arbitrary will dictates, screened from foreign 
competition in order that they may succeed in strangling 
all competition at home. Such an anomaly our people 
have endured and patiently tolerated under the paralys- 
ing influence of the nightmare of " Protection." Under 
such laws combinations of capital in particular lines of 
industry to dictate arbitrary prices to all the rest of the 
community will always be easy and of frequent occur- 
rence. The only protection of the community against 
the coal monopolies is free trade in coal, and if the com- 
munity has not intelligence and spirit enough to demand 
the application of that remedy, it richly deserves to suf- 
fer all the exactions which those monopolies can impose. 
But if our ports are open to the trade of all the world, 
subject to no other imposts than those that are strictly 
necessary for purposes of revenue only, such combina- 
tions can very seldom be successful, and will be rendered 
too hazardous to be often attempted. 



238 ECONOMICS. 

It must however be admitted that there are a few 
cases in which the supply of some important commodity 
is by the nature of the case so much confined to a very few 
hands, as to render the success of such a combination 
possible, and in the present condition of the pubHc mind 
in this country, not improbable. Petroleum is an ex- 
ample of this. Our great parallel lines of railway be- 
tween the interior and the Atlantic coast furnish another 
example. In either of these cases it is difficult to see 
what means the people have of protecting themselves 
against exactions, which at first view seem limitless. 
Are they limitless? 

§ 174. The competition that naturally exists in the 
case is between capital in one particular mode of invest- 
ment a?id all other capital. Those interested in the one 
mode of investment are seeking by combination arbitra- 
rily to dictate prices to all the rest of the world. Such 
an attempt is in the long run very likely to prove self- 
destructive. The petroleum trade will suffice for an 
illustration. Within a few months a combination of 
holders has nearly doubled the price of that commodity 
to the consumer. The consequence must eventually be 
a greatly diminished demand. All other modes of arti- 
ficial illumination will be resorted to more freely than 
before. Less artificial light will be used on account of 
increasing economy, and the area over which petroleum 
will bear to be transported will be diminished. Dis- 
covery and invention will also be stimulated to search 
after other methods of illumination, and other sources of 
supply. More recently it is announced that the com- 
bination is falling to pieces by the Canadian confeder- 
ates refusing to abide by the terms of it. Would it not 
be wise for our government to aid those American capi- 
talists who are struggling hard to maintain so praise- 
worthy a combination, by imposing a prohibitory duty 



PROFIT. 239 

on petroleum produced elsewhere than in our own coun- 
try ? This would at least be a consistent carrying out 
of our policy in respect to coal. Who stands ready to 
prove his consistent statesmanship, by introducing a bill 
for that purpose in Congress ? 

§ 175. The great railway combination r£f erred to above 
is one of still greater interest and importance. These 
lines of road seem to possess the power of combining to 
establish the rates of transportation both for freight and 
passengers at any point they may agree upon. Thus a 
small number of railway magnates seem to possess a 
power of taxation, which if net unlimited is at least of 
very indefinite extent. It is true they have sometimes a 
good deal of difficulty in agreeing together what that 
fixed point shall be, and while they disagree, the com- 
munity enjoys a season of temporary relief. But for the 
most part they are agreed, and the public has only to pay 
the prices which they impose. The excitement of the 
public mind on this question has been intense, though 
often we think, neither intelligent nor wise. The doc- 
trine has been widely inculcated that the public has 
peculiar rights in the case, growing out of the fact that 
railways are held and worked under acts of incorpora- 
tion granted by the legislature, and not by individual 
capitalists. But is it not evident that their rights and 
privileges are neither more nor less than individual cap- 
italists would possess in like circumstances.? The evil 
lies in the ease with which they can control an immense 
capital by the power of a single will. But this does not 
result at all from the fact that they are corporate and not 
natural persons, but from the greatness of the enter- 
prises and the vast amount of capital necessary for their 
construction and working. It cannot be denied that 
these great corporations do often for months and even 
years in succession so combine as to a great extent to 



240 ECONOMICS. 

set the law of competition at defiance. When, on the 
occasion of ascertaining that the crop of Indian corn in 
the great interior for a certain year was much larger than 
usual, the " representatives of the great competing lines " 
spent a social evening together at Fifth Avenue Hotel, 
and closed the pleasant interview by adding ten cents to 
the freight of a bushel of Indian corn from the Mississippi 
to the Atlantic coast, the public were confounded, the 
economists were made acquainted with a new law of 
price, but neither the public nor the economists saw 
any way of evading the tax so unceremoniously im- 
posed. No one has yet succeeded in showing how these 
corporations can be made amenable to the law of com- 
petition. 

Not only do such combinations set aside competition 
in determining the price of transportation, but cases cer- 
tainly have not been wanting, in which a great railway 
company has been able to exert such an influence on the 
Legislature, as to prevent the chartering of any parallel line 
to compete with it, and thus to prolong the monopoly in- 
definitely for the future. 

§ 176. This last mentioned evil could be easily 
remedied. Instead of granting a special charter to each 
railway company, all should be constructed under the pro- 
visions of a general railway law. Any capitalists might 
then, by simply complying with the provisions of the law, 
construct a railway wherever they might think it would 
yield a profit, and all capital invested in railways would 
be constantly liable to encounter new competition. Such 
liability would be a great protection to the interests of 
the public. The remedy is to be sought, as in a great 
many other instances, in allowing the largest freedom 
for the investment of capital. 

This however affords no security against combination 
of parallel li7ies. If we are correctly informed a recent 



PROFIT. 241 

decision of the supreme court of the United States sanc- 
tions the principle, that tlie Legislature may prescribe 
by law a maximbm rate of transportation. Such a law 
wisely drawn would probably afford the public consider- 
able protection. But that decision of the supreme court 
does not reach far toward the root of the evil. Fixing 
prices by law is not much more in harmony with sound 
principles of economy, than dictating them by the will of 
one of the parties. All economic arrangements must be 
elastic. Prices cannot be uniform. They refuse to be 
regulated by any cast iron rule. Rates of transportation 
which would be exorbitant at one time, or in one set of 
circumstances, would be ruinously low in other cases, 
Man has not yet discovered any other method by which 
prices can be equitably adjusted except that of competi- 
tion. If railwa3^s reject that method it is difficult to see 
hoYsf it is possible to make the law supply its place. 

§ 177, The public ought to find p7'otection in the 
sagacity, integrity and wisdom of the men who manage our 
great lines of railway. Nothing can be more evident, 
than that the prosperity of these great companies wil] 
alwa3^s depend on the prosperity of the great interior, 
especially on its agricultural prosperity. In an enlight- 
ened view of things, the real interests of the railways 
will be best promoted, by enabling the farmers of the 
interior to transport the products of their farms to the 
markets of the world at the lowest rate which will afford 
a reasonable compensation to the carriers. That will 
stimulate production to the greatest possible activity, 
and insure to the railways a constantly increasing amount 
of traffic, the profits oi which under the law of competi 
tion will rapidly increase for a long time to come. It is 
evident that the agricultural productions of that vast in- 
terior region and especially the growth of maize can be 
indefinitely increased, with scarcely any increase of the 
II 



242 ECONOMICS. 

cost. It would be about as easy to double the agri- 
cultural products of that portion of our country, as to 
double the quantity of woolen and cotton cloths produced 
in England. Increase of demand is the only lacking 
condition of an almost indefinite increase of the agricul- 
tural products of the Mississippi Valley. If the great 
railway companies study their own real interests, they 
will encourage and foster and not oppress that greatest 
of American industries. In such a case a selfish and 
grasping policy would be unwise and suicidal. In speak- 
ing of the combinations of laborers to raise wages above 
the natural rate, we had occasion to point out the dan- 
ger of arresting the natural increase of capital and palsy- 
ing the hand that feeds. . The same danger exists how- 
ever on the other side. It is admitted that capitalists 
are apt to be sagacious, but it must also be admitted 
that they are often too greedy of immediate gain to be 
truly wise. Whoever will devise a method of establish- 
ing a rate of transportation on these great lines of rail- 
way on the basis of open and equal competition, will 
doubtless confer a great benefit on all the parties con- 
cerned. Surely while these great companies set so 
stupendous an example of combination to resist compe- 
tition, no one should be surprised that their employes 
combine for higher wages, and that every where strikes 
are of very frequent occurrence. Such examples in high 
places are very likely to be followed. 

§ 178. We cannot however refuse to admit, that 
this railway problem is in some of its aspects compli- 
cated and difficult. The occurrence of an exceptionally 
large harvest in the interior of the country presents some 
questions of real difficulty, which are not always con- 
sidered. On the one hand should the railways attempt 
to transport all which should be offered, at rates of 
moderate profit to the stockholders, it would probably 



PROFIT. 243 

be many months before the necessary amount of " roll- 
ing stock" could be procured to meet the demand. 
The prompt filling of all orders would be impossible. 
On the other hand if the railway companies should make 
haste to procure the necessary equipment, as soon as 
that emergency was over, their " rolling stock " would 
greatly exceed their needs, and a large amount of unused 
capital would be on their hands. 

It should also be borne in mind, that if it were pos- 
sible to send promptly to the great' markets all which 
would be offered at moderate freight rates, the supply in 
those ma7-kets would be so greatly in excess of demand^ as to 
reduce the price to a point ruinously below the cost of 
production, and thus prove very injurious to the farmers 
themselves. If competition could be brought to bear in 
determining freight rates, it is certain those rates would 
be greatly raised in such a case. The case may not 
differ much from the practice of the Bank of England, to 
raise the rate of discount_, when pressed with more appli- 
cations for discount than it can safely grant. It accom- 
modates those who pay highest. At low rates of freight 
it is certain the roads can not carry all which in such cir- 
cumstances would be offered. To raise the freight rates 
is the only method of reducing the amount of work de- 
manded, within the limits of possible performance. It 
should also be noticed that this mode of procedure 
comes fairly within the limits of the law of competition. 
The arbitrariness of the proceeding may be more appa- 
rent than real. It may be only saying, we cannot accom- 
modate all. we will serve those who will pay best. An 
honorable private gentleman in any profession migiit 
feel himself quite at liberty to say the same. To one 
who stands at a little distance and surveys this contest, 
wisdom and justice would seem to unite in requiring, 
that these great companies should at all times provide 



244 ECONOMICS. 

such an equipment as experience has shown can be kept 
on hand with profit, to fix the medium price of transpor- 
tation at rates of fair profit, and to raise the rates when 
the traffic exceeds the capabiUties of the hne, and reduce 
them again when the extraordinary demand ceases. If 
the public could know, that the great competing lines are 
conducted on this principle, all reasonable men would 
be satisfied that competition has all the influence it can 
have in such a case. If to this it is replied that the line 
which should be conducted in this way would be ruined 
by the competition of parallel lines, it is perhaps a suf- 
ficient answer to say, that since it is plain the railway 
companies do not trust one another, it is perhaps not 
strange that the public does not implicitly trust them. 

We must leave this subject with the conviction, that 
in the present circumstances of society, the public has no 
very satisfactory assurance^ that there are not some cases in 
which capitalists devoted to particular indicstiHes can^ by 
combifiations for the purpose, protect themselves from free 
and open competition for periods, and perhaps for long 
periods, and thus exact upon the public according to 
their own arbitrary wills. If this is so, these cases must 
be taken from the court of economics — it cannot deal 
with them — and referred to that of ethics. If such cases 
really exist, the question will fairly meet us, to what ex- 
tent honorable men can avail themselves of such oppor- 
tunities of arbitrary exaction. 

§ 179. It cannot be denied that some inevitable evils 
are connected with the aggregation of large masses of 
capital under a single management. But there are ad- 
vantages also which civilization can not dispense with. 
Without such aggregations, those vast enterprises which 
form the most striking characteristic of our times would 
be impossible. In many other cases in which they are 
not absolutely indispensable, they greatly increase the 



CONDITIONS OF FREE COMPETITION. 245 

productive power of capital. Large establishments are, 
from the very fact that they are large, often much more 
profitable than small ones. It costs nearly as much to 
superintend a small operation as a great one. Motive 
power can often be much more economically used in a 
large establishment. There are many other expenses 
which do not by any means increase in proportion to the 
size of the establishment. In many branches of industry 
these advantages are so great, that if the demand were 
not greater than the large establishments could supply, 
competition would drive the small establishments out of 
the trade. But the forming of large combinations of 
capital is not always easy. The demand for the com- 
modity produced must therefore be still partially supplied 
from smaller establishments. The larger will, however, 
other things being equal^ enjoy larger profits. 



CHAPTER X. 



Underlying ConditioJis of Free Competition. 

§ 180. In the whole progress of this treatise thus 
far, we have been following the law of competition in its 
application to all the various phenomena of labor and 
capital. It seems desirable, before proceeding to the 
remaining questions to be discussed, to point out and 
insist on three underlying conditions of the sound and 
healthful working of competition. These three condi- 
tions are, 

1 . Perfect freedom of exchange in all circumstances. 

2. Such a degree of i?itelligence in both parties to any 



246 ECONOMICS. 

transaction^ as will place them on a footing of substantial 
equality. . 

3. Moral integrity. 

By insisting on perfect freedom of exchange, we do 
not object to the right of society to protect itself against 
any trade which is destf^uctive of health and morals. 
x^gainst all such trades it is the duty of the government 
to protect the community as truly as against the conta- 
gion of small-pox. But in respect to all articles not in- 
jurious to society, and possessing exchangeable value, 
freedom of exchange is a fundamental law of humanity. 
Many of us fail to see how profoundly fundamental it is. 
Its import may be thiis generalized. It is a first law of 
society that he who offers a higher value for anything 
than any one else offers for it, or sets upon it, is the 
natural owner of it, and in the view of a sound economy 
should meet no obstacles in becoming the actual owner 
of it. In our previous discussion we have vindicated 
such freedom of exchange in respect to the commodities 
of commerce, and in respect to all transactions between 
employers and employes. But there is one application 
of the principle which it seems quite necessary to insist 
on, before we proceed further, for to talk of free compe- 
tition without the fulfillment of this condition, is in many 
cases to delude ourselves with words which can have no 
meaning. We refer to the application of freedom of ex- 
change to the tenure of land. 

181. The ownership of land which is acquired by 
labor bestowed on it is absolute and entire. It includes 
not only the right to hold and use and enjoy, but the 
right to exchange it for anything which the owner re- 
gards as more desirable. A law which re?iders the land 
inalienable is a direct violation of this natural ownership. 
It may be that the present owner of a farm derives his 
title to it by inheritance from an ancestry that never 



CONDITIONS OF FREE COMPETITION. 247 

possessed such absolute ownership. Their title may 
have originated from the grant of a conqueror who held 
it only by the law of force. But it is now impossible to 
repair that act of violence, by restoring the title to the 
natural heirs of those from whom it was wrested. The 
real owners are the present holders. The present value 
of the land is due to the capital and labor which they 
and those from whom they inherit have bestowed upon 
it, and the law should recognize the absoluteness of their 
title, by removing all obstacles to the freedom of ex- 
change. The present owner may have no taste fo?' agri- 
cultural pursuits, and no talent for prosecuting them suc- 
cessfully. Land is not therefore the instrument which 
he needs to aid the work of his life, and will therefore 
never in his hands be brought up to its full productive 
power, and never render to humanity the service of which 
it is capable. He will pursue perhaps the line of life 
for which he is qualified by his taste and his talents under 
a great disadvantage, because the instrument which he 
possesses is not that which he needs. 

Near by him is one who has both taste and talent for 
an ag?'icultural life, but he has no land. That farm is 
the very instrument which he needs to aid the labor 
wdiich he is best fitted to do. He is able and willing to 
give for it a sum of money which seems to the owner of 
the farm much more desirable than the farm, because 
with it he can obtain the instruments and helps that 
will aid him in the work of his life. If now he owns the 
land in fee simple and no unnecessary obstacles obstruct 
the transfer, he will exchange it for the money, and 
both parties will thereby be greatly benefited. But if he 
holds it by an inalienable tenure, or the transfer is en- 
cumbered by many difficulties and expenses, the farm 
will probably remain comparatively unproductive, his 
own labor must be done under a life-long disadvantage, 



248 ECONOMICS. 

and his neighbor must shift as well as he can without the 
land he needs. It requires no argument to show, that 
the exemption of that land from the freedom of exchange 
is hurtful to every person interested in the ownership of 
it, and to the whole community. Nature's beneficent 
system is interfered with, one of her fundamental laws is 
violated. 

§ 182. Let us not leave this topic till we have some 
correct conception how widely this mischief spreads it- 
self, in a community in which land is generally exempted 
from the freedom of exchange, and how deeply it pene- 
trates. We need not look far into the history of nations, 
to assure ourselves that it is the highest ambition of the 
agricultural laborer everywhere^ to own the land which he 
tills. To accomplish this he will impose on himself un- 
remitting toil, and submit to a life of the severest self- 
denial and frugality. The ownership in fee simple of the 
land on which he labors is his natural savings-bank. 
Let the possession of land be subjected, like that of all 
other property to perfect freedom of exchange, and bur- 
dened with no exorbitant expense for conveyance ; and 
the ever active desire of the laborer for the land he tills 
will, through the innumerable incidents to which the life 
of every community is subject, find its opportunity. A 
case like that already supposed will occur. Or the 
owner of land will become involved in debt, and his 
lands will be sold in payment. Or he will leave his 
farm to many heirs, and it will be sold to facilitate parti- 
tion. Or by some other one of innumerable possible in- 
cidents the same thing will be accomplished, and nature's 
intentions will become efifect. Ownership will pass to 
him that most desires and most needs it. The tiller of 
the soil will become its lord. 

But if the land is owned in great estates by a title 
which forbids any present owner to alienate it, the laborer 



CONDITIONS OF FREE COMPETITION. 249 

has 710 hope. He never can be any thing but a landless 
drudge. The ownership of the soil he tills is not "" war- 
ranted and defended," but forbidden "to him and his 
heirs forever." He and his fellow laborers sink more 
and more deeply into the condition of a degraded class 
of " hewers of wood and drawers of water " for the favored 
proprietors of the soil of their common country. A here- 
ditary class have a monopoly or rather the exclusive 
possession in perpetuity of the only property which can 
be of any real importance to the agricultural laborer. A 
class of men, who with their ancestors who have gone 
before them, have given to the lands of the country all 
the real value which they possess, not only do not own 
those lands, but are virtually by law forbidden to own 
them. They spend their lives in a long succession of 
generations without the stimulus of hope. They may 
save, but they have little inducement to do so, for the 
savings bank is their only place of deposit, and the in 
terest it pays is so small that it makes scarcely an ap- 
preciable addition to their income. They have no inter- 
est in trying to make their labor more efficient, for they 
will themselves derive no advantage from its increased 
efficiency. The buoyant forces are all taken out of 
their lives. It is sorrowful to read the philanthropic 
words of enlightened and humane Englishmen, deploring 
the condition of the English agricultural laborer, and in 
real earnestness inquiring what can be done for him. 
Should these words ever meet the eye of such men as 
Mr. Fawcett and Mr. Joseph Kay, they may perhaps 
attach little importance to opinions coming from the far 
off interior of North America. But for all that we know 
whereof we affirm, and must speak that we do know. 
Nothing can they do for this wretched class of their 
countrymen, and we claim the privilege of saying, our 
countrymen too, — nothing effectual^ till they can pro- 
II* 



250 ECONOMICS. 

cure the abolition of this hateful land monopoly, and thus 
give to every Englishman that fair chance which nature 
intended for him of owning that which he more desires 
and more needs than any one else. 

§ 183. There has been and there still will be much 
effort to set all this aside, by proving that after all large 
farming is more profitable than small farmi7ig. Doubt- 
less it. can be easily proved, that the owner of a large 
farm enjoys some advantages over the small farmer. It 
is easier for him to avail himself of those agricultural 
machines which require a pretty large outlay of capital. 
But // cannot be shown that small farmers cannot combine 
together to secure those advantages, just so far as they 
are found really to reduce the cost of perfect cultivation. 
American experience shows that they can and will do 
any thing of the sort which their interest requires. Great 
landed proprietors need give themselves no philanthropic 
solicitude, lest the land should not be well cultivated if 
it should pass out of their hands. It has already been 
noticed, that agricultural machinery is not to any very 
great extent and probably never can be labor-saving. 
It is also far more important to the economy of a large 
farm than it can be to that of a small one. However 
that may be, no advantages which any intelligent man 
can expect from the use of agricultural machinery can 
make any compensation at all for degrading millions who 
should be self-active, self-impelling, self-superintending 
men, into mere machines, to be impelled and guided by 
the will and intelligence of an overseer. They say one 
overseer can superintend a hundred laborers as easily 
as fifty. But each one of those fifty or one hundred 
laborers will accomplish more as his own overseer, tilling 
his own land, and will produce better results than any 
overseer can obtain from him when reduced to the posi- 
tion of a mere working machine. Such is the precise 



CONDITIONS OF FREE COMPETITION. 25 1 

difference between the agricultural laborer that never 
treads a foot of his own soil, or knows the luxury of sleep- 
ing undei his own roof, and the man that owns the soil 
he tills, lies down at night in his own cot, and superin- 
tends and urges on his own labor. 

§ 184. It may perhaps be urged as an objection to 
this view of the subject, that English tillage under their 
system of large proprietorship is more thorough and com- 
plete than A7nerica7i tillage under our free system. No 
American who has had the opportunity of making the 
comparison will deny this assertion. English tillage is 
more thorough and perfect, but it does not hence follow 
that, in our circumstances, it would be better. The 
English farmer and the American farmer are employed 
upon problems of quite different conditions. The prob- 
lem of the English farmer is, to obtain the greatest profit 
from land of very dear rent, with very cheap labor. The 
American problem is, to obtain the greatest profit from 
land of very cheap rent, with very dear labor. Any sen- 
sible man would employ more labor at fifty cents a day 
on land whose rent was twenty dollars a year, or even 
twenty-five dollars, than he would if his labor cost a dol- 
lar a day and his rent only five dollars a year. Precisely 
this difference exists in the two cases, and fully accounts 
for the different degrees of thoroughness of the cultiva- 
tion. The perfection of English tillage does not result 
from the tenure of the land, but from very high rents and 
very cheap labor. Any English traveler in the United 
States may easily satisfy himself, that in all instances in 
which the price of our lands approximates the English 
standard, the thoroughness of our tillage improves in 
much the same ratio. 

We must not lose sight of another fact, which shows 
conclusively, that on the whole large farming under a 
great permanent proprietorship, is not more profitable 



252 ECONOMICS. 

than the small farming of freehold estates cultivated by 
the owner. Any man that owns a large farm can, pro- 
vided no unnecessary difficulty or expensiveness obstructs 
the transfer, sell it in small parcels^ each suited to the wants 
of a small proprietor^ who is to till it with his own labor ^ 
for much more than it cait be worth under 07ie manageme7it^ 
and the tillage of hired laborers; and the small proprie- 
tors who may buy it at these high rates will be far more 
prosperous, and live in a far higher style of comfort, than 
the laborers that tilled it under the single management 
and ownership. 

§ 185. We are liable to be asked why, if this is so, 
English lands are continually being aggregated into large 
farms^ and the holdings rapidly becoming less numer- 
ous. The answer is obvious. English law from the time 
of the Conquest, backed up by English custom founded 
on the law, and if possible more imperative than the law 
itself, attaches an unnatural dignity, personal importance 
and social position to the owner of land. These advan- 
tages excite in every man of wealth an artificial eager- 
ness to be a landholder, and make him willing to pay 
more for it than, considered merely as a source of in- 
come, it is worth. Primogeniture greatly increases and 
intensifies this passion for land. The law sustains primo- 
geniture by giving the landed estate of all intestates to 
the oldest son. Custom follows out the same idea, and 
extends it where the law does not carry it. To will one's 
landed estate to .his oldest son comes to seem right, it is 
custom, it is respectable, it is English ; to divide it 
equally among his children smacks of agrarianism, it is 
an approach toward — something not quite English. Law 
and custom combine to aggregate landed property into 
the smallest number of holdings, and to throw the labor 
of tillage as far as possible upon laborers to whom the 
ownership of land has become impossible. All the 



CONDITIONS OF FREE COMPETITION. 2C3 

attractions of rank, so powerful to English minds, attach 
themselves to land, and raise its price far above its worth 
as a source of income. There can be no equal compe- 
tition between the land owner and the laborer in circum- 
stances such as these. The laborer has been degraded 
by being subjected to these unfavorable influences for 
successive generations, and can conceive of nothing as 
possible to him but the hard lot in which he lives. He 
has no home of his own to be rendered tidy and neat and 
beautiful by female care and taste ; his wife and daugh- 
ters and sisters having no home function, often sustain 
at his side the labor of the field, and swell the super- 
abundant supply of labor which keeps down its wages to 
the very verge of starvation. This sad picture might be 
verified in every particular, by citing English authorities 
of the very highest respectability. If English philan- 
thropy will do anything for the agricultural laborer with 
permanent effect, she must direct her efforts to the total 
and perpetual abolition of her land monopoly. 

If we are told that we Americans know little of the 
difficulty of accomplishing so fundamental a revolution, both 
in the political and social life of England, we reply that 
is very probable. Yet we do know enough of the serious 
difficulties of the case, to discern very clearly why Eng- 
lish philanthropists, statesmen and Christians are very 
averse to looking this question full in the face in all its 
painful aspects. We once had a question involving still 
more alarming difficulties. We were compelled to meet 
it. With nearly three hundred years of experience of 
the beneficent workings of free trade in land, we are 
competent judges of the necessity of abolishing a land 
monopoly, however difficult it may be. We are willing 
to hear lectures from the other side of the Atlantic, on 
the monopoly of protection ; we need them, some of us 
are grateful for them. Many of us are grateful for the 



254 ECONOMICS. 

support and encouragement we received from English- 
men in our conflict with slaver}^ But we are soundly 
qualified to give lectures on land monopoly. Of these 
two monopolies, both of them sadly out of place in the 
last quarter of the nineteenth century, the land monopoly 
is beyond comparison the more fundamental, and the 
more subversive of all sound economic principles. 

§ i86. A second underlying condition of free com- 
petition stated in the first section of this chapter is — such 
a degree of inielligetice in both parties to afty transactiojt, as 
will place them on a footing of substantial equality. 

Every transaction of exchange which is conducted by 
competition assicmes such equality. No honorable man 
will negotiate an exchange with another party, knowing 
that he is ignorant of the value of his own property, and 
of that which is offered him in exchange, or if he does 
exchange with him, it will not be on the principle of com- 
petition. He will take upon himself the entire responsi- 
bility of making sure that the -ignorant man suffers no 
loss in the transaction. A farmer cannot enter into com- 
petition with his domestic animals. According to his 
own knowledge he must give them what they need, and 
they can only have what he gives. 

On precisely the same principle, individual men and 
classes of men may be so far degraded below the ordi- 
nary standard of intelligence, as to be disqualified to trans- 
act 77iany of the commo7t affairs of life by competition. There 
are classes of laborers who are in this very condition in 
respect to all contracts for wages. They might perhaps 
obtain higher wages from other employers than they are 
receiving. But they do not know it, and have too little 
mental activity to raise the question. It may be that 
higher wages are paid for such labor as they are accus- 
tomed to perform in other districts not far away, and to 
them not difficult of access. But they do not know it, 



CONDITIONS OF FREE COMPETITION. 255 

and are too spiritless to raise the inquiry. We are told 
the difference between the wages of agricultural laborers 
in the counties of Wiltshire and Yorkshire, England, is 
five shillings a week, or considerably more than one-fifth 
of the entire wages which the Wiltshire laborer receives. 
Why does not competition equalize the wages paid in 
these two counties ? For the most part the answer is 
the ignorance and stupidity of the Wiltshire laborer. 
The laborer might emigrate to some other country of 
cheap land, abundant food and high wages, lands too of 
liberty and security of life and property. But such la- 
borers know not that there are any such lands, or that 
emigration is to them possible. In short it is a thing of 
most frequent occurrence, that in highly civilized coun- 
tries large classes of men settle down into such condi- 
tions of ignorance and semi-brutality, that competition 
can do nothing for them. The pretense of competition 
is a mere sham, and will result only in stripping the ig- 
norant man of his all, to enrich his sagacious and quick- 
witted competitor. While these classes continue in this 
degraded condition, our science can do nothing for them. 
It cannot reach them. It may point out as we are try- 
ing to do the causes of their unfortunate condition, and 
put in a plea for the removal of them. 

§ 187. It is for this reason only that public provision 
for education claims the attention of the econoiJiist. We re- 
joice to say that there is in this country almost a una- 
nimity of opinion, that the government ought to provide 
against the existence of any such degraded and ignorant 
classes in the bosom of society. The only point of differ- 
ence which exists among us in respect to this matter re- 
lates to the manner in which provision shall be made for 
the supply of this want. There are those who think that 
the sovereignty over society should be divided, that one 
portion of it should be committed to the secular or civil 



256 ECONOMICS. 

power, and another very important portion of it to a 
spiritual power called the church, and that the education 
of the people should never be undertaken by the former, 
but entrusted entirely to the latter. The civil power 
may raise money by taxation for the support of schools, 
but it must entrust the management of them entirely to 
the ghostly power of the church. It would be a novel 
arrangement indeed, that the civil power expressing the 
common voice of a free people should annually raise 
many millions of money to be entrusted to the manage- 
ment of a distinct sovereignty, sustaining no responsi- 
bility to the people that contribute it, and perhaps owing 
allegiance to a foreign prince. But we have nothing to 
say in this place of this matter. It belongs to morals 
and not to economics. 

Neither shall we attempt to define with any accuracy 
the liinits of that system of education which should be pro- 
vided for all the people at the expense of the state. 
Public education comes within the sphere of economics 
only from the necessity of qualifying all the people for 
entering into that competition, which we have seen is the 
controlling force throughout the economic world. It is 
obvious that a system of public instruction must, in order 
to accomplish that end, afford to every citizen the means 
of acquiring a sound acquaintance with our noble mother 
tongue as spoken, written and printed, and thus come 
into communication through common and public dis- 
course, personal correspondence and periodicals and 
books, with the existing actual world, and with the civil- 
ization of our own age and of all ages. He should also 
be supplied with a knowledge of numbers, as requisite 
for all the ordinary purposes of computation and accounts. 
The great outline facts of geography, history and science 
will be everywhere open to the easy acquisition of any 
one who possesses such a knowledge of a civilized mother 



CONDITIONS OF FREE COMPETITION. 257 

tongue, and of the science of numbers. We do not affirm 
that. the state ought not to provide for all the people a 
much more extensive education than this. But we do 
say on the one hand, that no one can be fairly qualified 
to meet the competitions of life without having received 
an education substantially fulfilling these conditions. On 
the other hand we affirm that such an education does 
place the man who has enjoyed it in vital communica- 
tion with the thought of the world, and qualify him to 
take his place as a civilized man and citizen, and if it 
can be shown that the state ought to furnish to every 
citizen at the expense of the taxpayer, an education more 
extensive than this, the proof of that obligation must 
surely be found elsewhere than in the economic relations 
of the question. There is no pretense that persons thus 
educated are not well-fitted so far as schools can do any- 
thing for them, to meet all the competitions of trade and 
industry. 

§ 188. Philanthropists to whom public education is 
a comparative novelty, are in danger of placing too much 
dependence on it alone, as a means of elevating depressed 
and degraded classes. You cannot educate a people 
without the stimulus of hope. The reason why popular 
instruction has always been so powerful in this country 
is to be sought in the fact, that hopefulness is the most 
powerful element in the life of our people. The very 
child at school sees that all the prizes of life are free to 
his competition, and that all the paths of prosperity are 
open before him. Remove from American society that 
element of hopefulness, and our system of popular edu- 
cation would cease to yield its beneficent fruits. It 
would languish and die. We do not believe " National 
Education " can do much for the English agricultural 
laborer, till the possibility of becoming the proprietor 
of the soil is given him. You cannot make him aspire 



25 S ECONOMICS. 

to become an educated drudge. For his elevation our 
observation would lead us to repose far more confidence 
in free trade in land without public education, than in 
public education without free trade in land. A people 
with the avenues to every species of prosperity open be- 
fore them are far more likely to educate their children 
without the aid of the state, than a class of persons 
against whom the avenues to a prosperous life are ob- 
structed, are to receive an education when gratuitously 
tendered them. The experience of this country every- 
where teaches the efficiency of self-help rather than of 
government help. 

§ 189. The history of our country furnishes one ex- 
ample of the combined influence of free trade in land 
and a system of public education substantially such as 
that defined above, in qualifying a farming community 
for the vicissitudes of life, which deserves to be recorded. 
We refer to the history of the farming population of New 
England. Free trade in land existed there from the 
origin of the Colonies^ and it has always been the glory of 
New England, that through her system of public schools 
every child was taught to read and write his mother 
tongue. The consequence is that New England never 
contained a degraded and wretched class, unless brought 
there by foreign emigration, and that a greater propor- 
tion of her sons have not only received the education of 
her common schools, but have been liberally educated 
at her colleges for professional and public life, and have 
become men of national and some of them of European 
reputation, than in any other community on the globe. 
This has been true not only of the sons of her wealthy 
families, but of the hard-handed farmers, that have forced 
a subsistence out of her rugged and unfriendly hill sides. 

Nor is this all. The soil of these states is for the 
most part barren and its cultivation veiy laborious. Its 



CONDITIONS OF FREE COMPETITION. 259 

winters are long and very severe, increasing the cost of 
living, and rendering the rearing of domestic animals 
very expensive. Early in the present century the farm- 
ers of these states began seriously to feel the competi- 
tion of products procured from much better lands. 
Within the last fifty years, the products of the great 
interior of the country have found their way to the mar- 
kets of the Atlantic coast by great lines of easy com- 
munication, and by their ruinous competition have driven 
most of the products of the New England farmer quite 
out of the market. Lands in New England have declined 
in price in many cases to one-half and in some cases to 
one-third the rates at which they were sold at the begin- 
ning of the century. In most cases in the history of the 
world, the failing of such disaster upon a numerous farm- 
ing population has produced great distress and pinching 
poverty. The New England farmer has had the intelli- 
gence and energy to pass throngh the trial without any 
such experience. Some have remained at the home- 
steads of their fathers, and bought the lands of their 
neighbors at the reduced prices at which they were 
offered, and found the means of making a good living 
from the few products which could still be reared with 
profit. Others have disposed of their farms, and ac- 
cumulated wealth by making the mountain torrents that 
rush down their valleys drive machinery of almost every 
variety. Others still went to the cities, engaged in com- 
merce and often found their places among the merchant 
princes of the land. By far the greater number however 
traced back the lines along which that superabundance 
of agricultural products came that ruined their New 
England farming, made new homes amid the boundless 
fertility of the Great Valley, and became wealthy land- 
owners. Give a farming population freedom of exchange 
and migration, and the self-reliance which is nurtured by 



2 6o ECONOMICS. 

high intelligence, and they will be equal to any emer- 
gency. The history of New England farming is worthy 
of the study of the economist. 

§ 190. We mentioned at the beginning of this chapter 
a third underlying condition of equal competition — moral 
integrity. We do not propose dwelling on this topic. 
It is necessary to do little more than to name it. Com- 
petition i7i the eco7iomic se?tse assumes the truthfulness of 
both parties to the transaction^ that each party is offering 
for exchange that which he professes to offer, and not 
something else. Whenever this ceases to be the fact 
competition between the parties ceases, and the struggle 
between them is no longer an effort of each to obtain the 
true value of his commodity, but a succession of cunning 
tricks to outwit each other. Prosperity means success- 
ful villainy, failure unsuccessful effort to defraud another. 
If any honest men come to such a market they are but 
too likely to fall victims to the arts of deception that are 
practiced all around them. Let no one imagine that 
such a scramble of knaves, each endeavoring to appro- 
priate to himself the greatest possible amount of dis- 
honest gains, bears any resemblance to that competition 
which is the pervading law of our science, of which truth 
is ever the fundamental element. The transaction of a 
people's business in the manner just characterized is the 
sure symptom of social decay and rottenness. The 
struggles of unprincipled men in the gold market, the 
stock market and the grain market to outdo other men 
in the arts of deception, sustain the same relation to 
honorable competition, that the ostentatious prayers of 
the hypocrite do to the genuine devotions of righteous 
God-fearing men. 



POPULATION. 261 



CHAPTER XL 



Population. 

§ 191. It has been made evident in our previous dis- 
cussions that population is an indispensable element of 
our science. We have seen how it is related to wages, 
to rent, and to the cost of living. It is necessary there- 
fore next to inquire into the economic laws by which the 
movements of population are controlled. Toward the 
close of the eighteenth century, the celebrated Mr. 
Malthus published his theory of population, which has 
since exerted a prodigious influence on the economic 
writers and thinkers of the English school. It was 
originally in the mind of Mr. Malthus a powerful reaction 
against the day-dreams of the enthusiast Godwin, about 
the perfectibility of human nature. But its influence on 
the speculations of economists since its publication have 
been perhaps scarcely less injurious, than the prevalence 
of the theories he opposed would have been. As Professor 
Bowen very justly remarks, "the whole subject of Politi- 
cal Economy is colored with it," and we will add that 
coloring is a deep tinge of melancholy, which has ren- 
dered the whole subject repulsive to all minds of a cheer- 
ful and hopeful turn. It is our intention in this chapter 
to show that a true view of the subject gives no coun- 
tenance to any such sombre and melancholy conclusions. 

The fundamental principle of Mr. Malthus' theory is, 
that the natural fecimdity of the human race is such, that 
the population i?t all countries constantly tends to out7'U7i 
the means of subsistence, and therefore to keep the lower 
stratum of population always on the verge of starvation. 
English economists especially have accepted this doc- 



262 ECONOMICS. 

trine without due consideration of the checks and modi- 
fications to which natural law subjects it, and have laid 
it so much to heart, that they often seem to regard it as 
the foremost duty of the economist, to point out methods 
of preventing the too rapid increase of the laboring classes. 
Scarcely any theme is dwelt on with more copiousness 
and eloquence, than the imprudent marriages of the la- 
boring poor ; and we will add, that it seems to us, that on 
no subject have more eloquent words been vv'asted. The 
increase of population in a given country or in a given 
class depends on natural laws which will have their 
course, with very little respect to the eloquent words of 
economists. 

§ 192. We have already shown, that in the long course 
of human events, the fundamental principle enunciated 
by -Mr. Malthus would prove true, provided the whole 
world can be brought into such a condition of peace, 
prosperity and civilization as to permit both capital and 
population to increase according to their own laws, till 
all the resources of our planet are developed to the ut- 
most, that is till the entire food-producing power of the 
whole earth has been brought into active use and devel- 
opment. But we purpose to show that in the long inter- 
val which must intervene before the human family can 
make any sensible approach towards such a consumma- 
tion, the doctrines of Mr. Malthus are to all practical pur- 
poses worthy of no consideration^ 2.w^ that even at that 
distant day when if ever there shall be an approximation 
to that completed order of things, there are ample pro- 
visions in the very nature of the case against the sombre 
conclusions to which the followers of Mr. Malthus would 
conduct us. The safety of the human race in all the 
changes through which it is to pass in the progressive 
development of civilization is to be sought where, in the 
progress of this treatise, we have so often found it, in the 



POPULATION. 263 

full application of the law of competition. The opera- 
tion of that law will afford the assurance we need through 
two consequences which will flow from it. 

I. It will dissejninate by a regjilar and necessary p?'o- 
cess civilized commimities over the whole earth, or at least 
where there are natural resources to sustain them. 

II. Faithfully applied this law will always derive each 
succeeding generation from the soundest and healthiest part 
of the genei'ation that pi^ecedes it. 

§ 193. We are first to consider the influence of com- 
petition in securing the gradual dissemination of civilized 
communities wherever they can find sustenance. This, 
like many other laws of our science, has only within very 
recent times sufiiciently emerged from the confusion of 
the long conflict which has existed between civilization 
and barbarism to be capable of being distinctly discerned. 
But for the last two centuries it has been becoming 
more and more apparent, and can now be established as 
a permanent law of human progress. It takes eflect both 
upon labor and capital. We must first consider its rela- 
tions to labor. If the laborer is only a barbarian^ hew- 
ing wood and drawing water for a civilized employer, he 
will be too ignorant to know that there is any place to 
which he can emigrate and find a better lot, and too 
stupid to make the eflbrt. Such classes of laborers are 
almost as immovable as though they grew to the soil. 
But if the laborer has the intelligence and energy and 
self-reliance of a developed manhood, whenever the con- 
ditions of his life become hard, the government of his 
country oppressive, or the wages of his labor inadequate 
to the support of his family, he will seek a new home in 
some region of virgin fertility of soil and abundant un- 
appropriated resources. And he will carry civilization 
with him. He cannot do otherwise. It is inwrought 
into the very texture of his soul. Wherever he makes 



264 ECONOMICS. 

his home, the institutions of civilization and freedom will 
spring up spontaneously. From the emigration of such 
a people civilized communities are as sure to spring up 
in any wilds where they make their home, as the fruits 
of the earth are to spring from the seeds which they sow. 
Such communities can not spring from any migrations 
of laborers who are not themselves civilized men, and 
consequently no nation can become the parent of such 
young offshoots of civilization, whose laborers are de- 
graded and uncultivated. 

Perhaps the first manifestation of this law occitrred 
in the English colonization of North America. The mag- 
nificent results which have come from the settlements on 
the eastern coast of our country by emigrants from Eng- 
land, as compared with all else that has been achieved 
by the European colonization of the fifteenth, sixteenth 
and seventeenth centuries, can be explained only by the 
peculiar character of the population that planted those 
colonies. They were composed of farmers, artisans, 
merchants and scholars from the middle classes in Eng- 
lish society, and bore with them to the new world the 
best elements of the civiHzation of the mother country, 
and transplanted them to their new homes, and the emi- 
nent success of England in planting colonies in all parts 
of the world is due to the fact, that she sends out emi- 
grants that unite labor with culture. No nation can 
plant civilized colonies in the wilds of the earth, unless 
she has within her own bosom a working population 
which is imbued with her civilization. It is a great 
blessing to the world, that in the seventeenth century 
England had no Mr. Malthus to advise her to bring her 
birth-rate and death-rate as near to equality as possible, 
and that when he did appear, she was too wise to follow 
his advice, and that of the men of his school. Her 



POPULATION. 265 

population is still increasing at home, and widely diffus- 
ing her civilization in both hemispheres. 

§ 194. We have said that this law of diffusion was not 
apparent in the ancient world, or until comparatively recent 
times. Several of the civilized nations of antiquity sent 
out many colonies, but none of them manifested much 
power to transplant and reproduce their own civilization 
in the lands which they colonized. It was for the want 
of that very element of which we have been speaking, 
laboring men, artisans, tillers of the soil, who could 
colonize and carry the civilization of the parent state 
with them. The reason why the Egyptians did not fol- 
low the Nile to its source, as the American emigrant 
does the Mississippi and its branches, and plant their 
civilization upon the fertile lands of Central Africa, and 
around the magnificent lakes which recent travelers have 
made known to the world, was that her civilization was 
confined to the upper strata of society, and her toiling 
laborers had no share in it. They did not know how to 
seek a better lot in other lands, and escape the com- 
petition that crushed them at home. They had no cul- 
tivation, and if they emigrated could not carry it with 
them. 

There are some of the most cultivated nations of our 
own times, that seem to be in conditions in this respect 
very similar to theirs. The birth-rate and the death-rate 
are very nearly equal, and consequently they neither 
send out colonies to transplant their civilization, nor in- 
crease in population at home. They are as stationary as 
the followers of Mr. Malthus could desire. Such a 
nation may exert influence upon the world by its litera- 
ture and science, its arts, its diplomacy and its arms, 
but that higher prerogative of reproducing itself under 
other skies by its colonial off-shoots is denied it. 

§ 195. The power which a nation possesses of trans- 
12 



2 66 ECONOMICS. 

planting her civilization to unoccupied or sparsely oc- 
cupied portions of the earth, depends far more on the 
quality than on the quantity of . her emigration. There are 
at the present time several countries of Europe which 
swarm with emigrants, and yet the emigrating population 
of these nations shows very little power to lay the first 
foundations of civilized settlements. -Their places of 
destination are colonies founded by men of other nation- 
alities, and already in a prosperous condition. They 
are mingled with populations of strange language and 
institutions;, and in a generation or two lose their own, 
and nearly all traces of their national origin disappear. 
Nations will be successful in transplanting their civiliza- 
tion, just in proportion as the civilizing forces have 
reached those middle and lower strata of society, in 
which the pressure of competition is most felt, and the 
impulse to emigration strongest. Even England herself 
would be far more powerful in this way than she is, if in 
any way her agricultural population could be brought up 
to the position of intelligent, cultivated, self-reliant men. 
A far less number of such men could do all the work of 
English agriculture than are now employed in it, and do 
it much better than it is done, and English economists, 
instead of uttering fruitless lamentations over the impru- 
dent marriages of their laboring population, would exult 
in a still wider extension of the English language and 
English freedom in new regions of the earth than ever 
before. No doctrine can be more directly at war with 
the true prosperity of the world under its present condi- 
tions, than that of Mr. Malthus and his followers. The 
true economic lesson of the nineteenth century is not 
that of the Malthus school, but that given to our first 
parents, " to be fruitful and multiply and replenish the 
ea?'th.'' But we must remove from the generations that 
are coming all the oppressions of feudal and class legis- 



POPULATION. 267 

lation, and open to them all the blessings of free thought, 
free exchange and free locomotion, and then we shall 
have no reason to stand in fear of the " natural fecundity 
of the human race." 

§ 196. Free competition will not only disseminate 
civilized labor over the earth, but it will equally tejid to 
send abroad the surplus capital of civilized nations. We 
have seen that by an invariable law, the interest and 
profits of capital decline with the growth of wealth and 
civilization in any country. As the rate of interest de- 
clines, capitalists naturally become dissatisfied with the 
small gains they receive, and look abroad for more profit- 
able investments. If there are other countries where 
the risk is no greater than at home, and the demand for 
capital so great as to pay a much higher rate of interest, 
capital is as sure as labor to yield to the force of com- 
petition, and go where a higher rate of interest can be 
obtained. Such opportunities of safe and profitable in- 
vestment will be sure to be found in those new settle- 
ments which civilized labor is building up. The surplus 
capital of the country will therefore follow the emigrant 
laborer, and render him its powerful aid in founding and 
rearing up new free states and nations. As this process 
goes on, the safety of capital in the remote lands of the 
world will be constantly growing more and more assured, 
and capitalists will become less and less reluctant to 
trust their capital abroad. The coDsequence will be 
that the market for capital at home, relieved of a surplus, 
will be more buoyant, and accumulation more rapid. 
Surely then it should be the ambition of every civilized 
nation to secure for itself such a condition of its social 
and economic forces at home, that it may be able to bear 
its part in extending the blessings of civilization to the 
rest of the world. 

§ 197. The other consequence which will result from 



268 ECONOMICS. 

the application of competition to the problem of popula- 
tion is, that it will always derive each succeeding gejteration 
from the soundest and healthiest elements of the generation 
that preceded it. It is not denied that the law of compe- 
tition honestly applied to society must produce great 
inequalities of condition. It is now necessary that we 
should examine these inequalities analytically, and en- 
deavor to understand how they stand related to human 
^veil-being on the whole. Any observant man may easily 
satisfy himself that any civilized society, under the influ- 
ence of competition, will present four classes of jDcrsons. 

1. A considerable num^ber of persons will be found, who 
aJ'e not able to perform a sufficient amount of labor for their 
own support. The persons who belong to this class have 
partly been reduced to it by disease, or misfortunes 
which they had no power to avoid, partly also by their 
own vices, or the vices of their natural protectors, and 
partly they have been born with natural endowments so 
inferior that they are incapable of self-support. 

2. Another class is composed of those who, though 
able to labor for self-support., are not able to support fami- 
lies. These persons also have come into their unfortunate 
position through the same causes just enumerated. 

3. A third class is composed of those, who by a life 
of labor and frugality are able to sicpp07't a family 771 plenty 
aJid substantial comfort. In this class, in the best condi- 
tions of civilized society, are comprehended the great 
majority of the people. 

4. The fourth class is composed of those who are 
able to command an income that surpasses all that is 7ieed- 
ful for the sustenance and substantial comfort of a family. 
This class is small in numbers, but controls a*large por- 
tion of the capital of the community. 

As civilization advances, competition has never failed 
in any country to develop these four classes ; and, in 



POPULATION. 269 

respect to the problem of population the division is one 
of great importance. 

§ 198. From the nature of the case the two lower 
strata of society as just defined can contribute 7iothing to the 
capital of the future^ and little to its population. If mar- 
riages occur in these two classes and children are born, 
they will be born to conditions of poverty and want, and 
will either perish in infancy or be reared by charity. To 
a great extent the former will be the fact. Charity may 
do what it can for them, but their ordinary conditions 
will be so unfavorable, that few of them can survive those 
violations of the laws of life and health to which they 
will be exposed. These results will follow, not only in 
those advanced states of society in which population is 
approximating its greatest possible density, but in all 
stages of society. The difficult}^ in these cases is not 
the scarcity of the necessaries of life, but the inability of 
this class of persons to earn the support of a family. It 
is simply an application of the fundamental law that one 
owns nothing, except what he produces by the exertion 
of his own powers. These classes of persons do not own 
the means of supporting a family, because they do not 
produce them by their labor. 

The persons included in these two lower strata will 
not therefore be to any considerable extent parents of the 
coming generation. Just in proportion as society is per- 
meated by intelligence and high moral principle, the 
marriages of persons of these classes will be few and 
rare, because everywhere discountenanced and disap- 
proved. They will for the most part spend their lives 
under the protection and in the families of those who 
belong to the more prosperous classes, and will not suffer 
the inconveniences and privations of poverty. Thus 
competition fairly applied will clearly draw the line be- 
tween those -who should marry and those who should 



270 ECONOMICS. 

not, and to a great extent prevent the marriage of the 
latter. 

§ 199. The upper stratum or fourth class is, as has 
been remarked, small, and does 7tot co7itribute to the 
population of the future in proposition to its niimbes^s. For 
various reasons the self-indulgent spirit which is apt to 
prevail in the homes of the rich is proved by experience 
to be unfavorable to the rearing of children. The ranks 
of population for coming generations are therefore chiefly 
filled from the third class. It is also obvious, thai for 
the most part in this class only are found the conditions 
most favorable to a sound, healthy and vigorous human- 
ity. In all the other three classes they are in some de- 
gree wanting. In the higher, there is too little of self- 
denial, self-control and self-government. Both physical 
and mental energy are apt to be impaired by the absence 
of any felt necessity of exercising them. Humanity in 
the homes of the rich is too often like a hot house plant, 
sickly and delicate, because not inured to the trying 
varieties of experience which must be met in the open 
air of ordinary life. In the two lower classes the condi- 
tions are still more unfavorable either to physical, men- 
tal or moral soundness and health. But in the third 
class all the conditions of a perfect manhood may be 
more reasonably expected to exist, physical and mental 
vigor, a sound body and an active and instructed mind. 
If in this class the standard of domestic morality is 
elevated, marriage will be the almost universal condi- 
tion of life, and large families will be apt to be reared. 

§ 200. From the stand-point we have now attained, we 
can discover the relation of the law of competition to the 
reproductio?t of the race. It is simply and only a great 
natural provision for propagating the race from its 
soundest and most healthy specimens. Every intelli- 
gent farmer knows the necessity of providing for this, in 



POPULATION. 271 

order that bis domestic animals instead of deteriorating, 
may improve in their successive generations. The law 
of competition secures the propagation of the human 
race in accordance with such a provision. Any other 
mode of distributing the products of industry than that 
which results from competition, would defeat this benefi- 
cent design, and propagate the race indiscriminately 
from the best and the poorest specimens, or even give 
preference to the poorest. For example that system of 
involuntary servitude which but lately existed in this 
country propagated the laboring population in the por- 
tions of the country where it prevailed, from a race of 
barbarians, retaining its barbarism in the midst of us. 
The master encouraged the breeding of his slaves, and 
reared their offspring as a matter of profit, precisely as 
in the case of his domestic animals. For the most part 
slaves were the only available laborers. The system 
therefore contained a provision for raising up an inferior 
humanity, a race of barbarians, to be depended on to do 
the work of the country in all the future. It artificially 
and in violation of nature's law provided for the propaga- 
tion and perpetuity of barbarism — a barbarism as devoid 
of all the ornaments and beauties of life, of every thing 
except strictly necessary food and clothing, as the beasts 
of the field. 

The foimdation principle of all free society is every man^s 
owJiership of himself^ resulting by an inevitable logic, in 
the law of competition. The law of competition gives 
us the law of wages, and draws the future succession of 
the race precisely from that portion of the community 
that is most favorable to health of body and soundness 
of mind, and all the noblest attributes of humanity, and 
thus places the race on an ascending and not on a de- 
scending plane for all the future. 

One cannot fail to notice the agreement of the law of 



272 • ECONOMICS. 

population as thus developed with that struggle for exist 
eiice, that survival of the strongest^ which Mr. Darwin has 
shown to be very widely prevalent, both in the animal 
and vegetable kingdoms. We have by no means accepted 
the extreme inferences which Mr. Darwin draws from his 
very acute and philosophic observations. We do not 
think them justified by his facts. But he has shown that 
the principle above referred to has great influence in 
modifying a species within itself. We are not however 
in the least indebted to Mr. Darwin for the application 
of the principle to the human species in the law of popu- 
lation above stated. In the year 1863, years before we 
had any knowledge of Mr. Darwin's observations, we 
developed this law of population in an essay published 
in the Continental Monthly, then edited by Hon. Robert 
J. Walker. We have not since seen any reason to call 
in question its soundness. 

§ 201. We come therefore to the conclusion that the 
law of competition in the distribution of the products of 
industry, applied to a people however numerous, and 
spread over however vast a portion of the earth, pro- 
vided that people is thoroughly pervaded in all its 
classes with a sound and true civilization, will secure its 
propagation on an ever progressive course of growth and 
improvement ; but that if there is an understratum which 
is excluded from the benefits of its civilization, poor, 
ignorant, stupid, vicious, that fact will entail upon it 
hereditary disease, v/hich it will be exceedingly difficult 
to eradicate, when society has reached its maturity. We 
admit of course that the time must come, even on the 
supposition that all the social and economical laws of 
human well-being are strictly obeyed, when the popula- 
tion of the world will press hard upon the means of sub- 
sistence which can be derived from its soil. But the law 
of competition, applied under its necessary and natural 



CONDITIONS OF GENERAL PEACE. 273 

condilionSj affords the means of meeting that exigency 
as easily and with as little inconvenience, as it daily 
regulates the supply of breadstuffs or butcher's meat to 
the population of a great city. The supply is so accu- 
rately adjusted to the demand, that on the one side there 
is no lack and on the other no loss by excess. Precisely 
in the same manner, give competition unobstructed 
course, and give it freedom, rationality, intelligence and 
moral integrity to act upon, and it will adjust the popu- 
lation of the globe to the full productive power of the 
planet, without giving any occasion of anxiety or perplex- 
ity to the economic philosophers. There need be no 
fear of the too rapid increase of the laboring classes. 



CHAPTER XII. 

Economic Conditions of General Peace, 

§ 202. It has been made apparent in the two pre- 
ceding chapters, that it is an important condition of the 
healthful working of the economic forces, that intelli- 
gence and all the higher elements of civilization should 
reach and permeate that portion of the community that 
is composed chiefly of laborers possessing little or no 
capital. It was also shown incidentally, that the fulfill- 
ment of that condition is greatly facilitated by such an 
extension of free, stable and just government as will en- 
able both labor and capital to avail themselves of the 
resources of the whole world. Such an extension of 
civilization over the whole world is the ultimate result 
toward which the whole system tends. In order to this 
12* 



274 ECONOMICS. 

the prevalence of peace among all civilized nations is of 
prime importance. It is our intention in this chapter to 
turn a little aside perhaps from the direct line of our 
argument, to show that this also is greatly dependent on 
the extension of the benefits of civilization to the labor- 
ing masses. Nations will not live in peace with their 
neighbors, while they maintain within themselves such 
misadjustments of economic forces, as have been all too 
common in the past history of the world. 

In a former part of this treatise, it w^as shown, that 
there is such a natural adjustment of man's power to 
labor to the supply of his wants, that if the necessaries 
of life only are sought and enjoyed, a large part of his 
power to labor will find no employment, and remain per- 
petually useless. The same results will follow to a con- 
siderable degree, if the civilizing forces are applied only 
to a part of society. Doubtless the fund which the 
Creator has provided for the comfort, culture and orna- 
ment of human life is sufficient, if entirely utilized, to 
confer these blessings in some degree on all parts and 
portions of the community. When this end fails to be 
accomplished, when a small portion of society only enjoy 
these benefits to any degree, and the larger remainder 
live in disgusting squalor and rudeness, the beneficent 
designs of the Creator are not accomplished. A large 
portion of the fund which he has provided for human 
culture and development is wrapped in a napkin and 
buried in the earth. For example, we do not believe 
that the philanthropic and enlightened Englishmen who 
have reflected deeply on this class of subjects, would for 
a moment hesitate to admit, that the cultivation of the 
farms of England might be much better accomplished 
than it is, by a much smaller number of laborers than 
are now employed, if those laborers were stimulated by 
the hope that they and their families were to enjoy the 



CONDITIONS OF GENERAL PEACE. 275 

comforts of civilized life. There is at this moment in the 
economies of England a vast waste of productive power, 
which might be developed and utilized for the elevation 
of those degraded masses. The same number of la- 
borers under the influence of proper stimuli might not 
only produce the food which they consume, but very 
many comforts and beauties of life, which they never 
enjoy. The same must be true wherever vast masses of 
people labor throughout life, stimulated by no hope, 
but that of continuing a little longer their wretched 
existence. 

§ 203. The point insisted on in this chapter is, that 
the existence in any of the iiations of the world ^ of such a 
vast ainount of unused and wasted power is and always 
must be a destructive element. In all .constitutions of 
society, it threatens sooner or later to break out into 
insurrection and anarchy. If you reduce large masses 
to the helpless and dependent condition of domestic 
animals, you do not thereby impart to them quiet and 
unresisting instincts. You cannot so subjugate the 
human soul to power, that it will not retain a conscious- 
ness of manhood, and an intuition of the rights of man- 
hood. It is always a thing not only to be apprehended, 
but expected that, perhaps after generations of passive 
subjection, millions of these degraded men will at length 
find a common expression of their sense of injured hu- 
manity, and give vent to their long pent indignation, by 
laying waste and destroying that wealth for which they 
and their fathers have labored, but which they have 
never enjoyed. That tranquillity and social order which 
are indispensable to the development of the great eco- 
nomic forces of the world can never be assured, indeed 
must always be in great peril, while the mighty nations 
that have the peace and prosperity of mankind in their 
safe keeping, embody within themselves vast masses of 



276 ECONOMICS. 

men that are doomed to these unnatural conditions. 
Perhaps there is not a nation on either side of the Atlan- 
tic, that has not occasion to look well to its ill-conditioned 
and suffering masses, lest a cancer should be fastening 
upon the body politic, destined at some time to prove 
fatal to the nation. Such phenomena are a violation of 
nature's intention wherever they • exist, and cannot be 
perpetuated in any country without imminent peril. We 
ask for no revolutionary reforms. We have shown that 
all which can be done for such neglected classes is, to 
give them the full benefit of free competition for the 
acquisition of any species of capital by the possession 
of which their labor may be rendered efficient, and the 
opportunity to acquire that sturdy substantial intelli- 
gence, which fits men for success in the practical affairs 
of life. 

§ 204. The object however for which this chapter 
was especially designed^ was to point out the danger to 
the peace of the world^ which results f?vm the existence of 
such degraded ??tasses. If the government of a nation is 
largely concentrated in the will of one man, or of a lim- 
ited privileged class, the peace of the world is always 
endangered by the existence of unused labor power, out 
of which armies may be constructed. Any one who will 
attentively consider the character of ancient civilization, 
will be easily convinced, that the reason of its warlike 
aspect is chiefly to be found in the fact, that the masses 
of the people were in a degraded condition. They en- 
joyed nothing, they hoped for nothing but the bare neces- 
saries of life. There was therefore at all times a vast 
unused labor force. It was disposable and could be 
thrown now in this direction and now in that, at the 
caprice of powerful rulers. They had a better prospect 
of enjoying in plenty those necessaries of life to which 
only they aspired, in the service of the state^ than in any 



CONDITIONS OF GENERAL I'EACE. 277 

private employment which was open to them. They 
were therefore always at the command of despotic rulers, 
and could be used for any enterprises on which their 
hearts were set. They might sometimes be employed 
on such works as the pyramids, the temples of the gods 
and the massive walls of cities. But they generally were 
employed in those great military enterprises, which made 
the history of antiquity one long struggle for universal do- 
minion, till it was finally won by Rome. All the great 
empires of antiquity were conquered and held together by 
armies made up of such material. It was this partial 
character of all ancient civilization, which made military 
prowess the only title deed by which any nation of 
antiquity could hold one foot of earth's surface as its 
own. 

§ 205. Just in proportion as modern society embraces 
in its bosom this same element, it is in similar peril. 
Free governments that are thus conditioned are in con- 
stant danger of anarchy and military despotism. Govern- 
ments that are strong and concentrated in the hands of 
one man or a small class, if a large portion of their sub- 
jects are in the condition of which we are speaking, con- 
stantly threaten the peace of all their neighbors. It is not 
enough that by book education the people be instructed 
in the reading and writing of their mother tongue. They 
must acquire a standard of civilized living^ which will ren- 
der them no longer content, for themselves and their 
families, with the bare means of sustaining existence, and 
lead them to aspire to something like the true and prop- 
er life of rational manhood. When such a standard of 
living pervades the entire people, its whole labor power 
will be in demand, to supply its own conscious wants. 
There will be no disposable hordes of half-civilized men, 
fit material out of which to construct great conquering ar- 
mies, to fill the world with terror. All continental Europe 



278 ■ ECONOMICS. 

is to-day a sad testimony to the truth of what we are 
saying. 

A people thus internally conditioned will be strong to 
repel invasio?t. Any foreign power will trespass on its 
territory at its peril. But it will be incapable of disturbing 
the peace of the world by any efforts at foreign conquest. 
It is not to the shame but to the glory of Britain, that 
within the last half century her peaceful industries have 
been so greatly extended, and her labor power so 
absorbed in them^ that she can no longer plunge into 
foreign wars and dictate terms to the nations of Europe 
at the cannon's mouth, as she did in the end of the last 
century and in the beginning of the present. It would 
be greatly to the honor of her continental neighbors, if 
they were in this respect much more like her than they are. 
It is glorious to any nation on earth, that it is too intent 
on the pursuits of peaceful industry, too much occupied 
in providing for all the wants of all its people, to have 
any labor power to waste in meddling with the affairs of 
its neighbors, and too much love of country and of lib- 
erty, not to defend itself against all invasions of its soil, 
and of its rights among the nations. It would be still 
more to the honor of Britain if she could so modify her 
internal economies, as to lift up into the light those 
classes of her laboring po^Duiation that are now deprived 
of the benefit of her civilization, and make the law of 
competition as efficient to protect them as it is under her 
present arrangements to degrade and crush them. Till 
she does solve this problem, the future of her freedom 
and prosperity will be in peril. 

§ 206. Many of the finest intellects and the most 
philanthropic hearts in the world are employed in earnest 
endeavor, to devise some method by which for the ages 
to come, the peace of the world may be preserved. All 
good men in all lands must sympathize with their aims, 



CONDITIONS OF GENERAL PEACE. 279 

and devoutly desire their success. But we must express 
our undoubting conviction, that their radical and per- 
manent success is impossible, except on condition of first 
finding a complete and satisfactory solution of the prob- 
lem presented in this chapter. The disease is internal, 
though its manifestation is external, and an internal 
remedy must be applied, before the external manifesta- 
tion will cease. The root of the evil is in the internal 
economies of society, and until those are brought into 
nearer conformity with nature's laws, Europe will as now 
bristle with bayonets. " I made war on Maria Theresa," 
said Frederic the Great, " because I had men and money 
and w^anted to hear myself talked about.'* Any powerful 
monarch who has unused material out of which he can 
make powerful armies, will be very likely to make war 
on his neighbors for no better reason, than that he de- 
sires the celebrity and the fame of a warrior and a con- 
queror. The one only reason why an army of more than 
one million of men that our country had in the field at 
the close of our great civil war mingled with the people 
and disappeared forever from view in the short space of 
three months, is to be found in the fact, that that army 
was composed of men who longed to return to civilized 
homes and peaceful industries, from which they expected 
to derive prosperity and happiness for themselves and 
their families. Employ the whole labor power of a nation 
with such efficiency as civilized and enlightened men can 
attain, in such pursuits as these, and with such hopes, 
and there will remain nothing out of which to construct 
permanent armies, or any armies at all, except to meet 
the urgent necessities of national defense and preserva- 
tion. For these purposes armies may be made quickly, 
and will be as quickly dissolved when the end is accom- 
plished. The rulers of nations whose internal economies 
are thus adjusted, will be powerful still to protect and 



28o ECONOMICS. 

bless the people, but powerless to disturb the peace of 
the world. Such nations cannot be warlike, they will 
" beat their swords into plowshares and their spears into 
pruning-hooks." 



CHAPTER Xlir. 

Substitutes for Competition. Socialism. 

§ 207. We think it has been made apparent in the 
progress of this treatise, that competition is no device 
of man, but a permanent law of nature ; and that it as 
naturally bears sway in all the transactions of exchange, 
and in the distribution of wealth between the parties 
concerned in producing it, as the law of gravitation 
controls the movements of the planets in their orbits. 
From this it would seem to follow, that all those who are 
dissatisfied with the working of competition have their 
quarrel with human nature itself. We think also that it 
has been made apparent, that this law of nature is, hke 
every other, beneficent, that it provides for the protection 
and well-being of all classes of men, in all the conditions 
of life, and for the steady progress of the race as a whole, 
in all that is useful to man. 

But there are still not wanting those who are dissat- 
isfied with the results of competition, and are earnestly 
looking around them in the hope of discovering some 
other and better system, according to which the econo- 
mies of the world may be constructed. It must be ad- 
mitted, that there is much in the present condition of the 
world to excite disgust and heart-sickness at the things 
that are, and a vague and indefinite longing for some- 
thing better, of which however few minds seem to have 
formed any definite conception. Perhaps the long and 



SUBSTITUTES FOR COMPETITION. 28 1 

painful conflict which seems to be everywhere raging 
between capitalists who employ labor, and laborers who 
work upon other men's capital, has more influence in 
producing this mental anxiety than any other cause. 
It has produced wide-spread distrust of the present 
order of things, and a vague longing for the re-adjust- 
ment of capital and labor on some other principle than 
that of competition. Cooperation is the word which 
many persons and many schools of social reformers have 
chosen to express that unknown new order of things for 
which they are seeking, much as x and y are used to 
denote unknown quantities in algebra. The word can 
not be defined till the problems in the statement of which 
it is employed shall have besn solved. 

Some use this word and socialism almost inter- 
changeably, meaning by it a new organization of labor 
and capital, by which capital shall be controlled by com- 
munities, not by 7'ich individuals, C07nmu7iities shall be reck- 
oned the owjiers of the wealth created by their individual 
members, and the individual, being absorbed in the com- 
munity, shall rely on the community for support. This 
IS socialism pure and simple. 

Others are aiming at a modijied socialisjfi, in which 
the capital of all the members of the community shall be 
managed and their labor directed by the society ; but 
each m.ember on the other hand shall be credited with 
the capital he has furnished, and with the labor which 
he performs. All labor is to be classified by the officials 
of the community, and rated according to the degree of 
skill it requires. Every member is to have the neces- 
saries of life from the common fund, and if profits accrue 
from the industry of the community, they are to be dis- 
tributed among the members, in proportion to the cap- 
ital furnished, and the relative value of labor performed 
by each. 



282 ECONOMICS. 

Another conception of cooperation is that of an ar- 
rangement for dispensing with the services of the middle 
men, and enabling many consumers, by combining in 
their purchases, to obtain commodities directly, either 
from importers or manufacturers, at wholesale prices. 
Cooperative or union stores are of this character. So 
far as we are informed, little success has attended such 
efforts in this country, but a good deal qf success has 
been attained to in other countries. 

Others still intend by co-operation such an arrange- 
ment as will enable the laborer in some form to share the 
profits of production. 

There are also some other conceptions of the or- 
ganization of labor for the purpose of protecting the 
laborer from competition, which will require consid- 
eration. 

§ 208. The first of these modes of organization, 
which we have characterized as socialism pure and simple^ 
will require but little space here. It proposes to treat 
what we have throughout this treatise assumed to be a 
fundamental law of human nature, as a nullit}^ If the 
ideas upon which such a system of social organization 
must be founded are true, then there can be no such 
science as that which we are endeavoring to expound. 
No man who accepts the fundamental law which we 
enunciated at the outset, and appreciates the irresistible 
force of such a law can for a moment think the experi- 
ment proposed by these men worth trying. Man is no 
more adapted to such a life, than the barn fowl is to live 
on the water. He is formed for individual self-care, 
self-support, self-reliance, self-direction. The desire for 
individual possession and the sense of individual rights 
are in every man strong, clear and irrepressible. The 
attempt to place such a being in a community, which, by 
its united or corporate will and judgment, is to super- 



SUBSTITUTES FOR COMPETITION. 283 

cede all individual will and judgment, and reduce each 
man to a machine to be impelled and guided in the ap- 
plication of his powers by a personality not his own, and 
patiently to accept through life and for his children after 
him such results of his labor as the community may 
allot, — such an attempt cannot succeed. The incorrigi- 
bly lazy, the men without enterprise, without high pur- 
pose, or any sense of personal dignity, may be satisfied 
with such a life as a convenient way of living on the pro- 
ducts of other men's labor and other men's wits. The 
artful and unscrupulous demagogue may be delighted 
with such an organization of easy-going enthusiasts, as 
furnishing him an excellent opportunity of getting other 
men's earnings entrusted to his care, and profiting by 
the credulity of the simple. But upright, honorable, 
intelligent, industrious men will neither be willing to 
work for the support of the indolent, nor content, for any 
great length of time, with the results which will come to 
them from a life of toil under the direction of others. 
This is not human life. This is not human society. The 
perfection of human development cannot be obtained 
under such conditions. Investigators however sagacious 
will search in vain in human nature for the " attractions " 
by which such communities can be organized and held 
together. They must, in the future as in the past, soon 
fall to pieces and come to nought. It is the law of 
human nature, and must be the law of all human society, 
that the individual man is responsible for his own sup- 
port, and the owner of all which he produces. Nature 
herself has provided a modification of this law in domes- 
tic society, human ingenuity can devise no other. At all 
events as economists we need pursue this matter no fur- 
ther. It is quite outside of that fundamental law which 
we accepted at the outset, as the germ from which our 
science must grow. If such experiments can succeed, it 



284 ECONOMICS. 

must be by finding somewhere in the world a human 
nature with which we are quite unacquainted. 

It should also be borne in mind, that no temporary 
success of a community founded on this principle can 
prove the soundness of the theory. Such an experiment 
is made in the midst of the civilization which has been 
growing up for ages on the principle of competition, and 
must use a thousand advantages and helps which have 
originated from that very competition which the advo- 
cates of this theory reject. It is necessary to prove 
more than that a community of -socialists can live amid 
the sustaining influence of the civilization of the nine- 
teenth century and guided by the light of ages. It must 
be shown that it can stand alone, grow from its own 
roots, and mature a civilization by the development of its 
own laws, 

§ 209. That scheme of socialism which we have just 
considered seeks to eWninate the idea of individual owner- 
ship from the human soul, and treats all competition, not 
as a law of nature, but as a mean and mischievous 
selfishness. The modified for??i of socialisfu of which we 
are next to speak does not wholly discard individual 
ownership, but denies to the individul any appeal to com- 
petition for the protection of his right to the results of his own 
labor. The officials of the community must grade all 
labor, and assign to each class its relative price. It is 
impossible they should do this with any pretense of jus- 
tice in any other way than by reference to the current 
wages of labor as fixed by competition. A community 
organized to protect its members from all competition is 
therefore dependent, in adjusting its most important and 
delicate arrangements, on results which never could have 
been attained to, except under the free competition of 
that society at large, against which its existence is a per- 
petual protest. It is not therefore a system within itself. 



SUBSTITUTES FOR COMPETITION. 285 

While it rejects and condemns as oppressive that organi- 
zation of industry which free competition produces, it is 
glad enougli to guide its own way in the darkness which 
its negations have created, by the light which that hated 
and rejected system emits. It refuses competition to 
its own members. But it is still compelled to settle the 
property rights of its members by rules which that very 
competition has established. Such a community has 
surely very little reason to boast of the progress it has 
made in organizing a new system for the cooperation of 
labor and capital. How would it settle matters among 
its members, if all the rest of the world should be con- 
verted to its '^new system .?" 

In other respects this form of communism is liable to 
nearly the same objections which have been urged against 
socialism pure and simple, though perhaps in a less de- 
gree. The laz}^, the stupid, the careless of the future, are 
made sure of support by the labor, the skill, the foresight 
of others. The crafty, the cunning, the unscrupulous 
have still an inviting chance of practicing on the easy 
credulity and unsuspecting thoughtlessness of enthusi- 
asts ignorant of human nature, and too good naturedly in- 
dolent to lake care of themselves. It is an admirable 
device for enabling those who will not or cannot work, to 
live by the skill and pains-taking industry of those who 
will. Such a system is in open conflict with human na- 
ture, and we need not be at the trouble of arguing against 
it. Those laws of nature against which it has arrayed 
itself are quite strong enough to vanquish it without an) 
help from us. 

§ 210. Those organizations of consumers which are 
formed for the purpose of dispensing with the services of 
retail dealers, and deriving supplies directly from the im- 
porter or the manufacturer, with little or no addition to 
wholesale prices, need not detain us long. They violate 



2S6 ECONOMICS. 

no economic principle. It is of course desirable that the 
consumer of a commodity should obtain it from the 
original source of supply through as few hands as pos- 
sible, for he must pay a profit on each transaction of ex- 
change. The question, for example, how the products 
of the great manufactory may be most advantageously 
distributed to the consumers is a lair and open field for 
the exercise of ingenuity and skill. The economist will 
not hesitate to pronounce that plan the best, which on 
the whole accomplishes the distribution most cheaply. 
An examination of the methods which have been adopted 
for this purpose under the name of cooperation, will show 
that none of them are complete in themselves. They 
are not solutions of the problem for universal use. For 
example in many of them many consumers unite in fur- 
nishing the capital. Commodities are then purchased of 
the manufacturer or importer at wholesale prices as 
regulated by the general law of competition. They are 
then sold out to the combined consumers at customary 
retail prices, and the net profits are divided in propor- 
tion to the capital furnished. Of course both the price 
at which the goods were originally purchased, and 
those at which they are disposed of to the consumer are 
determined in the ordinary method of competition. The 
whole system is therefore founded on unmodified compe- 
tition, and is no solution of the general question. This 
is no reason why individuals should not resort to such 
methods when they find they can be benefited by them. 
But it does suggest a doubt, whether they are likely to 
prove extensively and permanently applicable. The 
present system of retail dealers is the result of long ex- 
perience, and it is very probable that many and unex- 
pected difficulties will be encountered in the attempt to 
dispense with it. We see no reason however for making 
any show of those difficulties. We shall rejoice in any 



SUBSTITUTES FOR COMPETITION. 2S7 

success which may attend experiments of this sort, as in 
all successful applications of labor-saving machinery. 
Such it would really be. 

§ 211. Cooperation as a means oi giving to the lahoi-er 
the advantage of an interest in the results of his ow7i labor ^ 
deserves more attention. We have already remarked, 
that the most perfect system of labor is that in which, 
to the greatest extent, the laborer owns the capital which 
he uses. As all which he produces is then his own, the 
stimulus which impels him to labor, and to use all his 
powers both of mind and body in rendering the results 
in the highest degree abundant and excellent, is as strong 
as possible, A man acting under such a stimulus will 
invariably accomplish more, than the same man would 
accomplish if he had no interest in the matter, except to 
obtain his daily wages. Any constitution of society 
either by law or custom, which tends to divide men into 
two classes, a small class owning all the capital and 
under no necessity of performing any labor, and a large 
class having no capital and doing all the work of society, 
is economically bad, and on economic grounds should be 
reformed if reform is possible. 

We have already indicated what the needed reform in 
respect to agricutural labor is. In every country under 
heaven the true cooperation of agricultural labor and 
capital is the ownership of the land by the men that till 
it. The true movement towards such cooperation is not 
the compulsory equal division of estates practiced in 
France, but absolute free trade in land. We do not 
believe that any scheme which philanthropy can devise 
will reach far towards the so much to be desired improve- 
ment of the condition of agricultural laborers, without 
the abolition of land monopoly. Some land owners may 
be humane and wise enough to try and to succeed in the 
experiment of giving their laborers, in addition to living 



255 ECONOMICS. 

wages, an interest in the products of the farm. Such an 
arrangement would no doubt be as wise as philanthropic. 
Any employer can afford, on the simple principles of 
gain and loss, to pay to a laborer who knows that he has 
an interest in the profits of his work, more wages than to 
one who feels no impulse of hope of a future better than 
the present. But it should not be forgotten, that such a 
boon is no compensation to the laborer for being per- 
petually excluded from the proprietorship of the land, 
nor is even this small boon likely to be often extended 
to the laborer under the present system. 

Something may be done for the laborer by education. 
Of that we have spoken in a previous chapter. Those 
who are well acquainted with our great system of public 
education will not be very sanguine as to what mere 
book education can do, except under favoring circum- 
stances in other respects. Few of us will believe, that 
the laborer can be educated into comfort, while he still 
remains the hopeless drudge, deprived of all prospect of 
ever becoming the lord of the soil. 

As to such cooperation as we are now^ speaking of, 
in other modes of production than agriculture, there is 
no natural obstacle in the way of applying it to any de- 
sirable extent. But it is entirely at the option of em- 
ployers to adopt or reject it, and we have not much hope 
of obtaining a general reform from the philanthropy of 
employers. We do not deny that they are as philan- 
thropic as other men, but most men are slow to carry 
philanthropy into business arrangements. They are 
much more apt to construct them according to the cold, 
hard laws of profit and loss, than to take any philan- 
thropic considerations into the account. If it can be 
demonstrated by experiment, that to admit laborers to a 
share of profits is the most profitable mode of manage- 
ment, we should then hope, that, like any other new and 



SUBSTITUTES FOR COMPETITION. 289 

useful invention, it would be adopted into general use ; 
and if so adopted we should believe it would greatly in- 
crease the profits of the manufacturer and the thrift and 
comfort of those who live by labor. The subject is cer- 
tainly worthy the diligent study both of the philanthro- 
pist and the capitalist. Perhaps nothing would tend 
more powerfully to bring to a happy termination the con- 
flict which has been so long raging between capitalists 
and laborers without capital, and unite as friends those 
who now so often regard each other as natural enemies. 
The continued prosperity of all branches of industry, the 
peace of society, as well as the comfort and happiness 
of all who work with other men's capital, imperatively 
require, that in some way cooperative and friendly rela- 
tions should be established betw^een these two parties as 
speedily and as widely as possible. 

No reason exists in the nature of the case, why at 
least a portion of the capital of a Joi?it stock company should 
not be thrown open to the cmnpetition of operatives^ thus en- 
abling them, if disposed, to invest their savings in the 
stock of the company. Of course those who have sup- 
plied the larger portion of the capital would reasonably 
wish to retain the control of its management. But this 
is no reason why operatives might not be permitted and 
encouraged to purchase a minority of the stock. Such 
an arrangement would greatly benefit the operatives, by 
affording them a desirable investment for all their sav- 
ings, and their employers also by insuring the good will 
of employes, and a deep personal interest in the pros- 
perity of the company. Such experiments are eminently 
worth trying in the present relations of employers and 
employes to each other, and both capitalists and philan- 
thropists have a very deqp interest in them. 

§ 212. Such modes of cooperation as the last two we 
have considered are not at all kindred to socialism. They 
13 



290 ECONOMICS. 

leave the ownership of all property intact. In the case 
of the co-operative store, competition is only removed 
one step farther back, from the retail merchant (whose 
services are dispensed with) to the wholesale merchant. 
Prices are determined just as in the ordinary method of 
obtaining supplies through the retail merchant. In the 
case in which employes become sharers in the profits of 
trade, it is only another method of paying wages. The 
wages paid are not a fixed amount, but depend in part 
on the profits realized. Should any company succeed in 
so establishing this cooperative system, that it should be 
seen to give to its employes a decided advantage, other 
operatives would be anxious to be employed by that 
company, and other employers would be under a neces- 
sity of adopting the same system, in order to compete 
successfully for laborers. This consideration encourages 
the hope, that if co-operation is really practicable and 
capable of being made beneficial, it may come into gen- 
eral use. It has the same chance of being generally 
adopted as any other really good invention. It will 
prove true in this case as in so many others, that if tried 
and found to be good, competition will compel everybody 
to adopt it. 

We cannot leave this subject without saying emphatic- 
ally, that there can be no more mistaken philanthropy than 
that which assails the law of competition in the interest of 
the laborer. There are but two possible methods of di- 
viding profits between the laborer and the capitalist. 
One is the method of competition, the other the method 
of force. If the latter is to be resorted to, it must be 
done either by enforcing the will of the laborer or the 
will of the capitalist. If the laborer is to enforce his 
arbitrary will, capital will cease to be accumulated, the 
capitalist can gain nothing and will therefore have no 
motive to employ his capital, or to save his gains if any 



SUBSTITUTES FOR COMPETITION. 29 1 

were acquired. Capital will decline, production will 
languish, and the laborer will be without employment. 

But if the will of the capitalist is to be enforced^ the 
laborer will be a slave. The only hope of the laborer is 
in meeting his employer on equal terms, and entering into 
a contract with him with the free consent of both parties. 
This is the freedom of labor and the freedom of capital, 
and there can be no other freedom of either. Philan- 
thropy and economy are perfectly at one in so organiz- 
ing labor and capital, that in all cases these two parties 
shall meet each other under such conditions, that com- 
petition shall have its free and unobstructed course. 

§ 213. Two so-called reforms have been proposed in 
the interest of socialism which merit a passing notice, 
more as an illustration of the utter anarchy which has 
taken possession of the minds of that class of men, than 
because they are really worthy of any serious considera- 
tion. We shall first consider the entire land revolution 
which has been proposed. The scheme is, that private 
ownership of lajid shall be abolished, and the state itself 
shall become the sole lafid-holder, and that it shall assign 
the use of particular portions of land to each cultivator, 
according to rules prescribed by law. The first question 
which presents itself to the mind in view of such a prop- 
osition, respects the method by which the state is to 
become the owner of the land. The more respectable 
of those who advocate this theory would deny that they 
have any thought of depriving the owners of land of their 
property without compensation. If this is so, then a 
nation situated as ours is must, by a single act of legisla- 
tion, incur a debt equal to the entire value of all the 
lands of the United States now owned by individuals. 
The owners of the property must be divested of it, and 
compelled to receive in compensation for it the promises 
of the government to pay. The first step therefore in 



292 ECONOMICS. 

the execution of this scheme must be 2i forced loan^ equal 
in amount to the value of all the landed property in the 
United States. 

One is impelled next to ask, how is the interest of this 
loan to be paid? If we are told that it is to be by the 
rent of the land, then we ask, in what manner the land is 
to be rented ? If it is to be thrown open to free compe- 
tition, rents will be as dear as now, and it is impossible 
to see what benefit the landless cultivator of the soil can 
derive from this stupendous revolution. And yet if the 
state has stipulated to pay to the divested owners the 
full value of their land, full rents must be obtained, or 
the state will not receive enough for rents to make its 
annual payment of interest. A constantly increasing 
deficiency of income must involve the state in inevitable 
bankruptcy. If the intention is to assign lands to the 
cultivator at a reduced rate of interest, then national 
bankruptcy is inevitable. On that supposition competi- 
tion in the assignment of lands would be out of the ques- 
tion. That is the enemy which the scheme is intended 
to crush. How then is it to be determined who are to 
enjoy the most desirable parcels of land ? Evidently 
there are only two methods by which it is possible that 
this should be determined. Either they must be allotted 
to those who will pay most for them, and in that case 
this whole revolution will be a failure, or else they must 
be assigned to the favorites of the government, than 
which nothing more odious and tyrannical can be im- 
agined. 

§ 214. We must believe that //z/j" wild scheme of in- 
iquity and folly is a very natural offshoot from the almost 
equally unsound principles which have underlain the land- 
tenures of Europe for ages. To a very great extent, those 
land tenures have been, it is sad to say are ev^en now, in 
flagrant violation of the only economic law which can be 



SUBSTITUTES FOR COMPETITION, 293 

defended on strict principles of natural justice. When 
the legislation of the nation violates fundamental eco- 
nomic law, the wildest confusion of thought will get pos- 
session of the minds of men, and anarchic ideas will pre- 
vail more and more till the abuse is corrected. The 
insane theories in relation to the nature and functions of 
money, which have gained prevalence since the passage of 
thp Legal Tender Law of 1862, afford a striking illustration 
of the truth of this remark. Had the legislation of Europe 
for centuries recognized the simple truth, that the owner- 
ship of land differs not at all in its nature from the own- 
ership of any other species of propert}^, and permitted 
the exercise of that right of free exchange in respect to 
it, which is implied in the very nature of ownership, such 
theories could never have gained possession of even a 
portion of the national mind. There is little hope of 
successfully meeting such theories by argument, till the 
land tenures of the several countries are brought into 
conformity with natural justice. Even in France, the 
existing order of things is far from satisfactory. The 
owner of land has a right to bestow it at his death ac- 
cording to his own will and judgment, and the law re- 
quiring the equal distribution of it among his heirs is an 
assumption, on the part of the state, of a right to inter- 
fere in the matter, which could not exist or be supposed 
to exist, if the proprietor was admitted to have the same 
absolute ownership of land as of any other property. 
The right to interfere in one way with the matter, implies 
the right to interfere in any other way, at the discretion of 
the state. Free trade in land is the only weapon by 
which tendencies to such anarchy can be eliminated from 
the public mind. 

§ 2 15. The other proposition of the socialist reformers 
on which we purpose to say a few words, is the ciawt that 
it is the duty of the governmefit to provide employme?it and 



294 ECONOMICS. 

pay wages to all tmemployed laborers. This claim has 
been more insisted on by these reformers than any other. 
It has cut an important figure in some of the great rev- 
olutions of Europe, and there probably is no country in 
Christendom, in which it has not at times been asserted 
with so much energy and show of force, as in some de- 
gree to endanger the public peace. It is the most rad- 
ical and the most subversive of all social order of any of 
the wild schemes of the sect. It is in principle an utter 
negation of the right of private property. When it is 
asserted that the state is bound to provide employment 
and wages for every unemployed laborer, it should not 
be forgotten, that the state is not a producer and there- 
fore not an owner of property, except so much as is 
needed for its public uses. What therefore it gives to 
one, it must take from another. If therefore the state is 
bound to see to it that every man has a living (and this 
is what the claim amounts to), the meaning is, that the 
state is a personality charged with the right and the duty 
of taking from those that have, and giving to those that 
have not, just so much as their necessities may seem to 
require. The property which the state will protect for 
any citizen is not that which he has earned and therefore 
rightfully owns, but what the state may see fit to leave 
him, after taking from him what it may think necessary 
to supply the wants of his neighbors. Every man is 
freed from all apprehension of want. If times are pros- 
perous and wages high, one has on the one hand no fear 
of want however prodigal he may be, for if times become 
hard, and he is out of employment, the state will provide 
for him ; and on the other hand he has no motive to 
accumulate, for if he does the state may at any time take 
it away from him, to supply the wants of those who waste 
all their earnings in reckless prodigality. If he becomes 
discontented with his wages, he has no fear of losing his 



TAXATION. 295 

place by engaging in a strike, for if he finds himself 
unemployed, the state is bound to employ him and pay 
him wages. It needs no argument to show that such 
doctrines as these are destructive of all rights of prop- 
erty, all social order, and of civilization itself. 

It becomes every honest statesman and true philan- 
thropist to turn a scrutinizing eye upon our whole system 
of legislation, to discover if possible any trace of the 
recognition of these anarchic teachings. Socialism is a 
madness, but there is much method in it ; and if we allow 
ourselves to admit into any part of our system, and re- 
tain there any germ of socialism, it will be developed 
rapidly, and bear fruit after its kind. Our poor laws, 
our public charities, our system of public education at 
the expense of the state, and all our legislation in respect 
to the relations of laborers to their employers should be 
carefully examined, and in every particular placed upon 
a basis of sound economic principles. It is the business 
of the statesman and the moralist and not of the econo- 
mist to pursue this investigation. The signs that this 
leaven of mischief and anarchy is present and working 
upon the masses of American society, are painfully ap- 
parent to every thoughtful observer of the passing scene. 



CHAPTER XIV. 

Taxation. 



§ 216. Should the suggestion be made that this is 
not the proper place for the discussion of this subject, 
our answer is, that perhaps the suggestion might have 
been equally appropriate, if it had been introduced else- 



296 ECONOMICS. 

where. The relation of taxation to econojnics is not logical 
but accidental^ and therefore a treatise on that science 
has no logical place for it. And yet it is so connected 
with all the economies of society, that it cannot be passed 
by in silence. The science must at all points assume, 
that those natural laws which it would construct into a 
system must have free action^ without being turned aside 
from their natural course either by fraud or violence. 
The fact however is apparent, that in all communities 
there are men, who are not disposed to respect those 
laws, but will utterly disregard and violate them, unless 
restrained by force. The only agency which can effect- 
ually exercise such restraint upon the lawless is govern- 
ment, acting in the name of society, and able to com- 
mand the whole physical force of the community to exe- 
cute its will. In the performance of this important 
function, civil government becomes quite indispensable 
to all production and all exchange. It may be regarded 
as a laborer whose services can nowhere be dispensed 
with, like a watchman that guards our premises by night, 
and this service it cannot perform, any more than any 
other laborer, unless it receives its appropriate reward. 
And yet its wages are not determined by economic laws. 
It receives whatever it demands. In some cases it takes 
the position of a partner, and accepts for its compensa- 
tion a certain per centage of the profits. But that share 
of the profits is not determined by agreement between 
all parties, but by the will of this one partner. The state 
furnishes no capital, because it has none to furnish, but 
it cannot perform its function unless it is supported by 
the contributions both of the capitalists and the laborers 
whom it protects. 

We cannot therefore apply to the consideration of 
this subject those economic forces with which we have 
had to do in our whole previous discussion. As econo- 



TAXATION. 



297 



mists we have really nothing to do with taxation, except 
to point out those functions for the performance of which 
the economies of society are necessarily dependent on 
the state, and to protest against the assumption on the 
part of the state of any functions which do not legitimately 
belong to it. The first duty of the state to the economic 
interests of society we have already indicated, — protec- 
tion of every citizen in the enjoyment of all his personal 
rights, — protection against all enemies threatening to 
assail those rights, and most of all against any species 
of tyranny or injustice from the state itself. No people 
can be prosperous that does not habitually live in the 
conscious security which the ever-present protection of 
such a civil state affords. There must be an assurance 
that the laws are just and will be justly and efficiently 
executed, that the judiciary is pure, enlightened and 
righteous, and that the police force is energetic and un- 
ceasingly vigilant. Such a government is always cheap 
at what it necessarily costs to sustain it, and such a gov- 
ernment will never place unnecessary burdens on the 
people. Exorbitant and unnecessary exactions always 
prove that the government itself is unfaithful to its most 
essential function. 

§ 217. It is sometimes asserted, rashly and thought- 
lessly we think, that protection of person and p?'Operty is the 
only function of government. It is certainly not true. In 
addition to this function civil government must be the 
agent of society for providing certain conveniences and 
comforts which are necessary to all, but cannot well be 
provided for by private enterprise. One of these is the 
postal service^ by which intelligence is rapidly, safely and 
cheaply conveyed to every part of a great nation. In- 
deed under the present peaceful relations of the nations 
to each other, and those improved international postal 
arrangements which modern statesmanship has devised, 
13* 



290 ECONOMICS. 

it provides for cheap and rapid communication between 
any one individual in the civilized world however hum- 
ble he may be, and any other. Every little post-office 
in Christendom is in easy and certain communication 
with every other. Nor is this limited to Christendom. 
The present postal system of the world is as cosmopolitan 
as our science itself It is a grand practical recognition 
of universal fraternity, and a striking illustration of the 
vastness of the benefits which enlightened governments 
at peace with one another can confer on mankind. The 
benefits which it confers on the economic interests of 
society are simply incalculable. It renders the negotia- 
tion of exchanges not only possible but easy and cheap, 
between any two individuals dwelling in any portion of 
the civilized world. 

The expense however of sustaining this magnificent 
system should not fall either in whole or in part on the 
taxpayer. It should be and may be self-supporting. 
That nation whose postal service is a burden upon the 
general revenue may well be suspected of a lack of states- 
manship. 

Another very important service which the govern- 
ment renders to the economic interests of society is the 
construction of the great thoroughfares of the country^ and 
the roads by which every man communicates with every- 
other. This also includes the care and improvement of 
the streets of cities and the numerous arrangements which 
are necessary for the health, comfort, convenience and 
safety of their inhabitants. It is not possible to point 
out any agency by which these necessary arrangements 
could well be provided, except that of the government. 
In such a system of government as ours, all these wants, 
except the construction of great national thoroughfares, 
should be provided for by local taxation. Each local 
community should in these respects take care of itself 



TAXATION. 



299 



It is also worthy of very serious consideration, whether 
the resources necessary for such objects of local improve- 
ment should not be raised and appropriated by the votes 
of taxpayers only. Excessive municipal taxation is at 
the present time one of the greatest burdens of the 
American taxpayer, and we will add one of the greatest 
dangers of the future. The rights of property cannot be 
safe in any country, where men who pay no taxes and 
bear none of the burdens of society have an unlimited 
power of imposing taxes for other men to pay, and where 
the hope of obtaining a profitable job from the public 
will induce multitudes of men who perhaps never paid a 
tax in their lives, to vote for some costly public work, 
without any proper consideration of its utility or impor- 
tance, and quite regardless how inconvenient and oppres- 
sive may be the burdens which it will impose on the tax- 
payers. If we are told that under our system there is no 
remedy for such an evil as this, our answer is, that only 
shows that the system greatly needs reforming. We 
believe in liberty, but liberty which works constant injus- 
tice will not be of long continuance. Men who pay no 
taxes are not well qualified to impose taxes on those 
who do. 

§ 218. We have already explained the necessity of pro- 
vidi7ig at the expense of the state certain opportunities of edu- 
cation to all the people. In so far as this has not been 
sufficiently provided for by the munificent school funds 
which many of the states received from the general gov- 
ernment, or other funds for school purposes which the 
states may have acquired, the means necessary must also 
be raised by taxation. Under our system they should be 
raised by local taxes. To what extent of costliness pub- 
lic education at the expense of the state should be carried, 
it is not within our province here to inquire. It is proper 
however to lay down a principle which, if we are right in 



300 ECONOMICS. 

the conclusions to which we have come in the course of 
this treatise, must be fundamental to the whole subject. 
That principle is, that the only reason why provisions for 
gratuitous education should be made at all at the expense 
of the state, is that the health and safety of society re- 
quire it. It is a reason of the same kind as that which 
justifies and requires such police regulations as are 
necessary for the prevention or removal of local nui- 
sances dangerous to the health of the community. It is 
to prevent the growth upon the body politic of cancerous 
tumors and fatal gangrene. The doctrine that it is the 
duty of the state to provide gratuitously for every child 
of every resident on the soil the means of an accom- 
plished education in every department of literature and 
science, rests on no better foundation than the doctrine 
that the state is bound to furnish employment for all un- 
employed laborers, or to render the ornaments of dress 
equally accessible to all men whether rich or poor. Aside 
from what is necessary for the safety and health of the 
community, the state is under no more obligation, and 
has no more right, to undertake the education of every 
man's children, than to feed and clothe and house them. 
The same fundamental law which makes a man the 
owner of all which he produces by his labor, also throws 
upon him the burden of supporting himself, and that 
family to which he gives existence by his own voluntary 
act, and the support of a family includes education, as 
truly as food and clothing and shelter. The more we 
scrutinize the phenomena of human society, the more 
apparent it will become, that the family and not the in- 
dividual is the constituent unit. 

It may perhaps be urged, that the well-being of society 
requires that facilities should be furnished at the expense 
of the state for the complete ediucation of all the people. 
If this were granted, it would not hence follow, that the 



TAXATION. 301 

benefit derived to society from such an arrangement 
would justify the cost of it. It might be a fine thing for 
the community, that every man should have a railway 
station directly in front of his own door, but the levying 
of a tax sufficient to accomplish it, would be the confis- 
cation of all property. The same would be true to no 
small extent of the attempt to provide for the gratuitous 
education of the entire people by taxation, provided that 
education was extended to the whole circle of literature 
and science. Nothing can realize that conception of 
public education which is entertained by many minds, 
and is deeply affecting our school legislation, short of a 
severity of taxation which will be found insupportable to 
the taxpayer. There may be good things which a 
householder cannot afford to provide for his family, and 
so there may be good things which the state cannot afford 
to provide for the people, because it will cost more than 
the people can afford to pay. 

It has however never been proved that a provision for 
the universal gratuitous education of the people would be 
beneficial to society. It is a question which lies quite out- 
side of our science, and we cannot therefore permit our- 
selves to enter on the discussion of it here. We can 
only state it, and leave the discussion of it to others. 
Can it be shown that the constitution of the state is such 
as to qualify it to devise and carry into execution a com- 
plete system of education for all the people ? Does any 
sane man believe that it would be wise and safe to en- 
trust that entire interest to political bodies and political 
action ? If not, then surely it is time for thoughtful men 
to begin to search in earnest for the limit, beyond which 
state provision for the education of the people ought not 
to go, and at which the burden ought to be thrown upon 
individual parents, of educating their own children. The 
whole subject is left in the recent legislation of the coun- 



302 ECONOMICS. 

try at loose ends, and no limit can be discerned to the 
burdens which are liable to be thrown upon the taxpayer 
in the interest of gratuitous education. The subject re- 
quires, not popular declamation, of that we have had too 
much already, but discrimination, definition, thoughtful 
statesmanship. We are convinced that to a certain ex- 
tent gratuitous education ought to be provided for the 
people at the expense of the taxpayer. But there is a 
limit beyond which it is not possible to carry that pro- 
vision, without ruinously severe taxation, and beyond 
which the interests of education are much more wisely 
left to the fathers and mothers of the nation, than con- 
trolled by the state. The time has fully come when this 
limit ought to be determined by wise, sound statesman- 
ship, and legislation be made to conform to it. 

It is surely not difficult to see that the principle 
which we asserted in respect to taxation for local im- 
provements equally holds here. A greater injustice can 
hardly be conceived of, than that men who pay no taxes 
should have unlimited power to vote taxes upon all the 
property around them to educate their own children. 
The men, who pay the taxes should surely have the right 
of deciding by their own votes, how much shall be ap- 
propriated to the gratuitous education of the whole com- 
munity. To deny them that right, is, so far as it goes, 
to take the disposal of their property out of their hands 
and commit it to the hands of others who have no inter- 
est in it, except to obtain as much as possible of it for 
their own uses. This cannot be a sound and righteous 
system of taxation, and if persisted in it will sooner or 
later result in disaster. 

§ 219. Provisions for the care of the tmfortunate con- 
stitute another important part of America?! taxation. We 
cannot conceive that a government representing a Chris- 
tian people can fail to make some provisions for the 



TAXATION. 303 

education of the deaf and dumb, the blind, and the fee- 
ble-minded, and for the care of the insane. The only 
questions which can be raised with reference to such 
provisions must respect the scale of costliness upon 
which they shall be constructed, and whether the bene- 
fits of them should be given to all gratuitously. It is 
evident that if such interests are provided for with un- 
thinking prodigality, considering only what is desirable, 
and not at all what burdens may be thrown upon the 
taxpayer, it is quite possible that these provisions may 
become far more costly than the real necessities of the 
case require, more costly too than a regard for the well- 
being of these unfortunates demands or permits. Such 
provisions should certainly be made in a spirit of gen- 
erous liberality, but not without the frugality of the true 
statesman, who will incur no greater cost than is neces- 
sary to accomplish the substantial ends at which he 
aims. That there has been much of this statesman-like 
frugality of late in our outlays for public charity, we 
think will hardly be pretended. If burdensome taxa- 
tion is an evil at the present time^ this subject will bear 
examination. 

Provisions for the care of the unfortunate must neces- 
sarily he to a certain extetit gratuitous, otherwise the poor 
to whom they are especially important would not be able 
to enjoy the benefit of them. But it is impossible for us 
to conceive of any good reason why the state should as- 
sume the entire burden of the education and care of all 
these unfortunates, however affluent their condition may 
be. The burden upon the taxpayer would be greatly 
relieved, if all persons in affluent circumstances were re- 
quired to make fair compensation for the benefits which 
they receive from these institutions, and we believe such 
persons would prefer to pay the full value of the service 
rendered them, rather than to receive it as a gratuity. 



304 ECONOMICS. 

Under the present tendency to burdensome taxation of 
which all taxpayers are sensible, the state ought to study 
every honorable method of diminishing the burden as 
much as possible. Of taxation for the relief of the poor 
we shall speak in a chapter especially devoted to that 
subject. 

§ 220. There is one claim of the government not only 
upon the capital but upon the labor and the life of the 
citizen, which is in the nature of the case unlimited. A 
government which is the defender of the peace of society 
and of all the rights of the citizens, not only has the right 
but is bound in duty to protect its own existence, and its 
power to perform its proper function, against any enemy 
that may assail it. When thus assailed, the government 
may claim the property and the personal service of every 
citizen, to whatever extent and at whatever hazard may 
be needful for its own preservation. To preserve the 
life of society is more important than any individual per- 
son or private interest can be, and the less must give 
way to the greater. On tliis principle only can national 
existence be preserved and prolonged. 

When a nation has incurred obligations however 
great in such a struggle for self-preservation, those obli- 
gations are to be regarded as a mortgage on the entire 
labor and capital of the nation, from which they can 
never be released, except by the full performance of all 
the promises which the government has made. National 
indebtedness binds the conscience of an entire people. 
Nations should be very cautious of incurring such obli- 
gations unnecessarily, and scrupulously faithful in their 
performance. 

§ 221. There are some uses to which the tax-levying 
power is often applied, against which it is the duty of the 
economist to enter his protest. That power should never 
be used for the purpose of diverti?ig either capital or labor 



TAXATION. 



305 



from those modes of employmetit to which they luould resoj't 
if left to themselves. A legislature is destitute of nearly 
all those qualifications which are necessary to fit it for 
judging in what way capital ought to be invested, in 
order to be most profitable to the community. Bring 
such a question as this before an American Congress for 
decision, and there is not one chance in a hundred that 
it will be decided correctly. The members are not prac- 
tically acquainted with the real elements of the question. 
They do not view it from the stand-point of the man who 
is about to lay out his own labor, or invest his own capi- 
tal They will be open to the influence of any man who 
may approach them for the purpose of accomplishing his 
own selfish purposes. Many political considerations 
which are quite irrelevant to the case will influence their 
minds and their votes. To draw a correct decision of 
the question out of the midst of such influences is seem- 
ingly' impossible. Yet these men after such a delibera- 
tion come to the conclusion that American capital is too 
largely invested in some one branch of industry, and 
ought to be withdrawn from it, and invested in some 
other, in which these sages have been made to believe 
that more of it should be employed. They immediately 
look around themselves for the means of accomplishing 
what they think desirable. The power of taxation is 
chosen as the instrument, and a heavy tax is imposed on 
all those who use certain foreign products, not for the 
legitimate purpose of taxation, to bring revenue into the 
national treasury, but only for the purpose of compelling 
labor and capital to leave one mode of investment in 
which they are profitably employed, and seek another in 
which our legislators think it would be better that they 
should be invested. This is a two-fold abuse ; it is the 
exercise of the legislative function for a purpose for which 
it was never intended, and is quite unfitted ; and it is ap- 



306 ECONOMICS. 

plying the power of the legislature to impose taxes to an 
end quite foreign to its legitimate uses. The power of 
taxation is frequently used for the purpose of discounte- 
nancing modes of using capital which are regarded as 
immoral or injurious to society. The propriety of such 
a use of it involves moral and religious questions which, 
though very interesting and important, cannot be appro- 
priately discussed in this treatise. But the cases of which 
we are speaking are not of this sort. Both the mode of 
employing capital which is encouraged, and that which 
is discouraged, are admitted to be legitimate and proper, 
and conducive to the general good ; and the legislator 
assumes to encourage the one and discourage the other in 
the comparison, because he claims in his capacity of 
legislator to be a better judge how capital ought to be 
invested than the capitalist does, and uses his power of 
levying taxes to compel such a use of capital as he judges 
best. This is a usurpation. The fit reply of the capi- 
talist to such intermeddling of the legislator is, — that, sir, 
is none of your business ; I am a better judge of it than 
you are. 

§ 222. This introduces the consideration of the mode 
of taxation, — a subject which lies outside the limits of 
our science, and of which we had therefore purposed to 
say nothing. But more reflection has convinced us, that 
it so nearly concerns the subject matter of which we must 
treat, that its consideration cannot be entirely omitted. 
Our views of imposts levied for the purpose of fostering 
certain industries, by protecting them from foreign com- 
petition, have been freely given. Bid our science enters 
no protest against iinposts levied for the purpose of raising 
necessary revenue. It cannot be denied, that that mode 
of taxation is recommended to the legislator by many 
important advantages. But instead of being in his 
hands a fit instrument to be employed in diverting trade 



TAXATION. 307 

from channels in which it tends to run, into others 
which he regards with more favor, the greatest objection 
against the use of it lies in its liability to exert such an 
influence. 

Let us suppose, for example, that a duty is imposed 
for the purpose of revenue only, on some commodity, 
the supply of which is partly produced at home, and 
partly imported. A duty levied on the importation of 
that commodity must, to all appearance, raise the price 
of that portion of the supply which is produced at home, 
and give a relative advantage to those engaged in that 
industry, to which they are in no way entitled. No true 
statesman, seeking revenue only, would sanction such an 
impost. He would either levy imposts upon commodi- 
ties that are not and cannot be produced at home, or he 
would balance the foreign imposts by a precisely equiva- 
lent internal tax on the home production, so that the 
home and foreign product would meet on terms of equal 
competition in the home market as before. Otherwise 
the price of the commodity would be raised to the con- 
sumer by the whole amount of the duty, and yet, so far 
as the supply was produced at home, the producer and 
not the public revenue would receive the benefit of it. 
Fn the free trade system of England, this point is care- 
fully guarded. Her policy is to raise her revenue from 
commodities not produced- at home. 

It may be objected to this, that it would often bring 
the burden of taxation on the poor as well as on the 
rich ; since, for example, such articles as tea and coffee 
must be taxed, because they are not produced at home. 
To this we reply, first, that these are luxuries rather than 
necessaries of life, and therefore very properly subject to 
taxation ; and second, that the most efficient revenue 
duty is shown by experience to be a low rather than a 
high one. The tax which it would be necessary to levy 



308 ECO>^OMTCS. 

on those articles would be so low a percentage, that its 
effect on a pound of tea or coffee would be but barely 
perceptible, and could not be a ground of just complaint. 
A demagogue might be disposed to magnify it, but a 
statesman would hardly regard it as a matter of serious 
im^Dortance. In a country where the vote of a poor man 
is just as weighty as that of a rich man, a small tax on 
an article of luxury, which presses with absolute impar- 
tiality on every voter, should never be complained of. 
A man who cannot pay a tax of five to ten cents per 
pound, on the few pounds of tea and coffee which any 
poor man would use in a year, can hardly be fit for a 
voter. No man of any spirit, whether rich or poor, would 
permit such a plea to be made in his behalf 

§ 223. The question is much agitated at present, on 
what forms of p?'ope7'ty taxes may be properly levied. One 
of the most important points in this discussion relates to 
the adjustment of tax levies, in respect to debtors and 
a-editors. A definition of property has been proposed, 
according to which debts due any one are not property, 
and are therefore not taxable. All property, it is claimed, 
has materiality and a local situation. Debts due to any 
one have neither, and are therefore not property. The 
reader need not be told, that we cannot accept this defi- 
nition. According to our definition of wealth, skill and 
power to labor are property. Yet they have no material- 
ity. An invention is a mere conception of the mind, 
yet it is property. But in the case under consideration, 
the definition of property proposed, even if admitted, 
would not avail. A man may be to-day the owner of 
one hundred thousand dollars in gold. To-morrow he 
may lend it, and receive for it real estate security. He 
has not by that transaction divested himself of all his 
property, or of any of it. Indeed it matters not whether 
he has taken security on real estate, or relied on the bare 



TAXATION. 



3^9 



credit of the borrower. The moment that loan is made, 
he owns the property of the borrower to the amount of 
one hundred thousand dollars. The evidence of indebt- 
edness which he holds is the proof of his right to such 
an interest in the property of the borrower. It is his 
title deed. The borrower may use the gold as he pleases, 
but the creditor is the owner of that amount of property 
which is in the present possession of the borrower. 

The question is certainly a fair one, how the transac- 
tion as thus described^ shoicld affect the two parties^ i7i re- 
spect to their liabilities to taxation. By the laws of some 
of the states, the tax assessor disregards this transaction 
entirely. He estimates the property of the debtor just 
as if the debt did not exist, and the property of the 
creditor as though the gold was still in his hands. It is 
only necessary thus to state the case, to convince any 
candid mind of the unreasonableness of the law. That 
item of one hundred thousand dollars is doubled in the 
assessment and twice taxed. A state that makes out its 
tax lists on that principle estimates the property of the 
people of the state at an amount immensely greater than 
it is. in truth. Such an assessment is a delusion, and a 
tax levied on it is a public oppression. It would be easy 
to show that, if taxes are assessed on this principle, the 
same property is not only liable, as in the case above 
given, to be reckoned twice over, but to be repeated any 
number of times. It is wonderful that any legislator 
should fail to notice the bald injustice of such a system 
of taxation. Nothing can be plainer than that the same 
property should be taxed but once. 

§ 224. The question will rise whether the debtor or the 
creditor should pay the tax. The answer cannot be difficult. 
Who is the real owner of the property in question } No 
one can be at a loss for an answer. The property of the 
debtor is the amount of all which stands in his name, 



3IO ECONOMICS. 

minus the debt. The property of the creditor, in the 
case supposed, is one hundred thousand dollars, the 
amount of the debt due him. Then let each of the par- 
ties be taxed for the property he really owns. Let the 
amount of the debt be subtracted from the property of 
the debtor, and assessed to the creditor. No injustice 
will then be done to either party. An assessment con- 
ducted on that principle would give the nearest possible 
approximation to the real value of the property of the 
people, and a tax levied upon it would be as near an ap- 
proach to equity as is attainable. 

In case of a debtor and creditor residing in different 
states^ the question would arise in which state the tax 
should be paid. A very clear and simple principle 
seems to be at hand to settle this question. All capi- 
tal should contribute to the support of the government 
that protects it. Property should therefore be taxed in 
the state, to the courts of which its owner would resort, 
to enforce his rights. A mortgage must be foreclosed 
in the courts of the state in which the mortgaged prop- 
erty is situated. To that state therefore the creditor 
should pay taxes, no matter where he himself resides. 
The same principle will hold, when no real estate security 
is given. The creditor should still pay the tax to the 
state in which he is to bring suit, to enforce his rights. 

The construction of a system of taxation on these 
principles would gY&^.t\y facilitate the discovery of all prop- 
erty rightfully subject to taxation. If the person in whose 
name any taxable property stands, is required to make 
an exhibit of his property, he will of course, for his own 
protection, make known any indebtedness which can be 
offset to it. Let him also be required to give the credi- 
tor's name and residence. Let the neglect of the credi- 
tor to pay the tax, work a forfeiture of his claim against 
the debtor; in which case, the debtor being released 



TAXATION. 311 

from his obligation to pay the debt shall become liable 
for the tax. The effect of such a law would doubt- 
less be, that in the original contract for the loan, the 
debtor would agree to pay the tax, as a part of the con- 
sideration for the use of the money. In such a case the 
property of the borrower would be estimated without 
reference to the debt, and the creditor would be unknown 
in the assessment, and would simply receive a lower rate 
of interest on account of his exemption from taxation. 
This arrangement, so perfectly equitable between the 
parties, would secure to the state precisely the amount 
of revenue to which it was entitled. For such a debt, 
the creditor should of course not be taxed in the state in 
which he resided. The adoption of these principles of 
taxation in all the states, would greatly facilitate the free 
movement of capital over our whole country, according 
to the law of supply and demand. It would secure 
equity everywhere, and work injustice no where. 

§ 225-. It needs no argument to prove that the rapid 
increase of taxation for purposes of local improvement., 
gratuitous education and charitable provisions for the 
unfortunate is one of the great dangers which threateit the 
future of our country. The entire amount of taxation 
borne by the citizens of many of our towns and cities, 
exclusive of all charges levied by the federal government, 
ranges from three and a half to seven per cent on an as- 
sessment of property at its cash valuation, and that at a 
time when the current rate of interest cannot be said to 
exceed eight per cent per annum. It surely needs no argu- 
ment to prove, that such taxation must be very oppressive 
to the industries of the country, and a great obstacle to 
the accumulation of capital, especially when it is farther 
considered, that to the figures given above must be added 
all the charges of supporting the federal government, 
and for paying interest and principal of the national debt. 



312 ECONOMICS. 

If any one thinks there is nothing burdensome and alarm- 
ing in such taxation as this, we must be excused from 
believing that he is either a financier or a statesman. 
Such burdens laid year after year on the industry of the 
country do not indicate statesmanship, but recklessness 
such as disqualifies one for any position of public trust. 
These are plain spoken words, but the gravity of the case 
requires it. 



CHAPTER XV. 

Pauperism. 

§ 226. There is no logical place in the science of econom- 
ics for such an anomaly as pauperism. That science 
has to do with a society made up of units, each on-e of 
which is a personality endowed on the one hand with 
power to labor, and capable on the other of supporting 
itself by its own labor. Each one is expected to be, 
not only self-supporting, but to be capable of adding 
something to that great human patrimony^ which is con- 
stantly being acccumulated for the benefit of all. In 
each of these units may be embraced all the individuals 
of a family. There may be a mother whose entire power 
to labor is absorbed in the care of children. There may 
be children who will not yet for many years be able to 
bear the burdens of the laborer, or adequate for self- 
support. There may be decrepid age whose task is al- 
ready done. There may be the invalid whom disease 
has prematurely disqualified for labor. But the unit is 
the family, and that unit with all embraced in it is ex- 
pected to be self-supporting, and if possible accumtilat- 



PAUPERISM. 213 



ing 



" If any one will not work neither shall he eat," is 
sound economy and sound morality. 

But this theoretic economic world is not in all respects 
the real world in which we live. There are frictions in 
the workings of our economic machinery, which we must 
not refuse to consider. Some are never endowed with 
powers of self-sustentation. Others are deprived of 
those powers by disease or by the inevitable providence 
of God. Others through sheer indolence refuse to work 
that they may eat. Others still are disqualified for self- 
support by their vices, or are deprived of the means of 
subsistence by the indolence and vices of their natural 
supporters and protectors. Any of these cases of disa- 
bility are liable to occur in respect to persons who are 
not embraced in any self-supporting unit, and are there- 
fore entirely unprovided for. 

Over and above all this, it has been true in all the 
past history of the human race, that in the progress of 
society in wealth and population, large numbers of men 
have fallen out of the current of general prosperity, and 
spent their lives on the very verge of starvation. No 
civilization has ever existed for any considerable length 
of time, which had not a lower stratum of extreme pov- 
erty and wretchedness. Perhaps nowhere in the world's 
history has this phenomenon put on more shocking and 
revolting aspects, than in some of the most cultivated 
and wealthy modern nations. To this hour we are pro- 
vided with no eftectual antidote or remedy for this dis- 
ease of the body politic. 

§ 2 2 7. W/iat theji shall he do7iefor these jnasses or with 
them? As economists we cannot refuse to consider this 
question. We have pointed out the laws by which am- 
ple supplies of human want are created, exchanged and 
distributed. But here are vast masses belonging to our 
common humanity, that perform no such service in the 
14 



314 ECONOMICS. 

creation of wealth as would give them an available claim 
to a share in the distribution. Is there no possible re- 
adjustment of economic laws, by which these wants may 
be supplied ? Must not our laws of distribution be made 
in some way to bend, or relax their tension^ so as to give 
bread to these hungry mouths? All agree in maintain- 
ing that the bounties of the Creator are intended im- 
partially for all, and that the system should be so con- 
structed as to give to all a fair opportunity to supply 
their wants by their own labor. All would equally agree 
that it is the province not only of Christian charity, but 
of humanity, to supply the wants of all those who are in- 
capacitated to labor, either by natural imbecility or 
inevitable calamity. All these cases are easily disposed 
of, not only in theory but in practice. If the sufferings 
of the poor could be confined within the limits which we 
have just defined, the humane impulses which are native 
to the human heart, and still more the charity which is 
deeply imbedded in the very foundations of our religion, 
would be entirely adequate to provide for every exigency 
of the case, without any interference either of the econ- 
omist or the legislator. But when all these cases have 
been provided for, there still remains a vast amount of 
uncomforted and unmitigated wretchedness. What shall 
be done with and for it.'' 

§ 228. At this point it seems to us the question should 
fif'st be referred to the consideration of the Christian^ the mor- 
alist and the statesman. We have already indicated the 
economic causes, which we think tend to increase and 
perpetuate these evils, and earnestly insisted on the 
necessity of their entire removal. We have insisted on 
such a construction of all our economic machinery as 
will give to every man a fair chance in the race of life. 
Our science can do no more. Are there misadjusted 
moral forces, are there social customs and arrangements 



PAUPERISM. 315 

which increase the temptations to vice and multiply the 
number of its victims? Can any change in our laws and 
police regulations remove dangerous temptations out of 
the way of the young and the unwary? Are our towns 
and cities collecting revenue from branches of traffic 
which deprave the morals and waste the substance of the 
people, and which therefore ought to be utterly prohib- 
ited instead of being made sources of revenue ? Is there 
any possible application of moral forces in the power of 
the moralist and the Christian, whereby men may be lifted 
out of these morasses of society, and restored to virtuous 
self-control, self-support and self-reliance ? There is no 
good citizen who is not deeply interested in every one of 
these questions, and the man who passes by any one of 
them, saying this is no concern of mine, is not a good 
citizen. 

§ 229. There is nothing in the past history of the 
world to justify the expectation that any immediate and 
effectual remedy of these evils can be secured by the ap- 
plication of social and moral forces, and we are forced 
back upon the question how will the economist deal with 
them. Our answer is, he can deal with them only in 
negations, but those negations are very grave and im- 
perative. 

I. We must not repeal or disregard the great funda- 
mental law of the science^ that every man owns himself and 
all which he produces. To over-ride that law under any 
pretext, is not to relieve the poor, but to make everybody 
poor and all poverty hopeless. That law is the gravi- 
tation of the economic universe. Repeal it, and the 
whole falls to pieces. Repeal it, and no man will work 
except for the supply of immediately pressing want. 
Why should a man work, when his neighbor who will not 
work is as likely to enjoy the fruits of his labor as him- 
self? Under such an order of things there can be no 



3l6 ECONOMICS. 

accumulation, no civilization. Just in proportion as you 
weaken one's sense of security in the enjoyment of the 
fruits of his industry, you diminish the stimulus to labor, 
and weaken all the forces that impel society onward in a 
career of prosperity. In helping a few you bring all into 
peril. 

2. Another prohibition which science lays on us is, 
that we must not re?7tflv£ from any man the fear of suffer- 
ing want, as a consequence of neglecting labor and frugality. 
We have shown in the first part of this treatise, that all 
that originally induces any man to work, is the seen 
necessity of working, that his wants may be supplied. 
Take from any man or any class of men all sense of this 
necessity, and they will cease both to work and to save. 
We do not at all hesitate to say, that it is better that 
some, nay that many should suffer want, and even per- 
ish, than that these two prohibitions should be disre- 
garded. If the laws and the government cannot provide 
relief for the poor without weakening the force of these 
two fundamental principles of our science, it is far better 
that they should abstain from any interference, and leave 
the poor to the care of individual charity. If in our 
efforts at public philanthropy, we weaken these great 
natural forces, we make ten paupers in relieving one. 
We take food from the mouth of him that has labored 
for it, and give it to him that is living in idleness on the 
fruits of other men's toil. Remove the hope of gain and 
the fear of want from men's minds, and you have no other 
motive by which you can induce men to exert their 
powers either for their own or for the common good, and 
all must go down together into the common wretchedness 
of savage life. To insist on these two prohibitions is 
nearly the whole which our science has to say of pauper- 
ism. 

§ 230. Still the ear of humanity cafinot he entirely deaf 



PAUPERISM. ,1- 



to the cry of suffering, perishing poverty. It is to be hoped 
provisions may be made for relieving the extreme neces- 
sities of the poor, without any dangerous violation of 
fundamental laws. The first principle which we shall 
enunciate as the result of experience and philanthropic 
mquiry is, that relief should be furnished if possible only 
at establishments provided for the purpose. Experience 
shows that relief granted at public expense to the poor at 
their own homes or on the streets, is always demoralizing. 
These establishments should always be provided with 
the means of furnishing employment for all who are 
aided, and all should be required to work to the full 
extent of their ability. "By the sweat of thy face shalt 
thou eat thy bread," is a divine law, and men must not 
repeal it. Such houses for the relief of the poor may 
with suitable management be made nearly self-supporting. 
The greatest care should however always be taken, 
not to throw the products of such establish7nents on the mar- 
ket at rates which are below the price as deterijiined by gen- 
eral competition. It is quite ruinous to producers in any 
line of industry, to be liable to be undersold by the pro- 
ducts of the labor of those who are not working for a 
living. It is the case of the needle-woman over again in 
another form. It is better to support either paupers or 
prisoners entirely at the public expense, than to ruin the 
business of honest and industrious men by such an un- 
natural competition. Indeed it is no competition. True 
competition is a struggle for life on both sides. In this 
case life is at stake on one side and not on the other. 
For this reason it is always best to employ the labor of 
paupers in producing those great staples, the demand 
for which is so large, that their competition will produce 
no appreciable effect on price. Such a public provision 
for the poor or the unfortunate should never be permitted 
^'1 underbid independent individual labor. 



3l8 ECONOMICS. 

§ 231. The reason for confining the relief of the poor to 
public establishments is, that multitudes would apply for 
and accept relief at their own houses or in begging from 
door to door, who would never ask for it if they could 
receive it only at the poor-house. We would be glad 
to be considerate of the feelings of the poor. Christian 
charity will find innumerable cases, in which the duty of 
soothing and sparing the feelings of the sufferer is just 
as imperative, as the duty of supplying food and clothing. 
But we* are speaking of public provisions for the relief 
of paupers, and in constructing a system for this purpose, 
the poor must consent and be content to receive aid in 
ways consistent with the greatest good of the whole, 
and not in disregard of it. Society must not make such 
provisions for the relief of the poor, as to take from 
poverty all its terrors. The sufferings of poverty are 
nature's penalty for4dleness, and no community has any 
right to repeal that penalty. Out-door relief, that is re- 
lief of the poor at their own homes removes all limits, 
and speedily introduces into practice the vicious prin- 
ciple, that every necessitous person, no matter how his 
necessity may have been caused, has a right to be re- 
lieved. This is the fundamental principle of The Eng- 
lish Poor Law^ and it is admitted by economists and 
philanthropists to have fearfully extended the area of 
English pauperism, and to have produced a state of 
things which sometimes occasions serious apprehension 
for the future of English society. Let the principle once 
be established, that every one who is really necessitous 
has a right to be relieved at public expense, and may 
obtain the relief he needs by simply making his neces- 
sities known, and disastrous consequences are inevita- 
ble. As soon as the times are hard and the procuring 
of the necessaries of life becomes difficult, application 
will at once be made for aid at the public expense. 



PAUPERISM. 319 

This application once made and granted will be repeated 
and urged as long and as often as the difficulty of living 
continues. Having found a source of supply easier than 
industry and frugality, a man will cease to depend on 
these or to practice them, and his demands on the pub- 
lic treasury will be more frequent, larger in amount, and 
more urgent. Soon he is a pauper for life with his fam- 
ily. If there had been no relief short of the poor-house, 
he would have increased his efforts, and gotten by the 
hard place without ever becoming a pauper at all. 

The influence of every such rase is very bad upon 
neighbors, whose circumstances are about equally hard. 
Seeing one neighbor relieved at public expense they in- 
quire why they should not have such help as well as he, 
especially seeing that their labor is taxed for his sup- 
port. One such seed of pauperism dropped in a neigh- 
borhood soon yields a large harvest. We do not desire 
to swell this volume with the statistics of English pauper- 
ism. But we advise every one to look into them and 
take warning. English pauperism sometimes puts on 
aspects so grave, that it seems to threaten to engulf 
the wealth of England, great as it is. The subject is re- 
garded with solenin apprehension by all thoughtful Eng- 
lishmen. English poor relief has not only tended to 
increase the number of paupers, but it has actually in- 
creased it on a vast scale. It is an experiment which 
ought not to be lost sight of in this country. It is bet- 
ter for all, rich and poor, that some should perish of 
want, than that such a cancer should fasten itself upon 
the nation. 

This view of the subject assumes peculiar importance 
and seriousness in a country which is governed by uni- 
versal suffrage. In many of our states, perhaps in all, a 
man does not cease to be a voter by becoming a pauper. 
He not only contributes nothing to the support of the 



320 " ECONOMICS. 

government, but his daily bread is drawn by taxation 
from the fruits of other men's labor ; yet his vote has 
just as much weight as that of the most industrious, 
frugal and thrifty citizen. He votes the appropriation 
of other men's earnings to his own maintenance. We 
suspect any intelligent foreigner, on first becoming ac- 
quainted with this fact, would regard it with astonish- 
ment. It is humiliating to acknowledge, that in some 
states at least our poor laws are so constructed, as to 
admit of and favor the distribution of bribes to the voter 
under pretense of relieving the necessitous. It cannot 
be denied, that there are some cases in which municipal 
authorities incur the just suspicion of administering the 
poor laws in this manner, for the purpose of securing 
their own reelection. It needs no prophet to foretell, that 
under poor laws so constructed and administered, pau 
perism will be likely to increase with alarming rapidity. 
This evil has not as yet, in most parts of our country, 
grown to alarming dimensions. But principles have 
found their way into our legislation, which are produc- 
ing serious inconvenience in some localities, and are 
fitted to awaken grave apprehension as to what may 
happen, when our population shall become dense and 
the means of subsistence difficult to be obtained. The 
law should surely be so constructed, as to set no tempta- 
tion before public officers to encourage pauperism by 
bribing voters, and the time to arrest such an evil is 
while it is yet in its infancy. 

§ 232. EstablishiJiejits for the relief of the poor should 
be public reformatories. Vice is incomparably the most 
fruitful of all the causes of povert}^ So soon as any one 
throws himself upon the public for relief, no time should 
be lost in resorting to all known appliances tending to 
moral reformation and self-government. No one should 
continue to receive either public or private charity 



PAUPERISM. ,2 J 



While persisting in the practice of those vices and self- 
mdulgences which have reduced him to poverty. A 
great dea of poverty is caused by indulgences of the ap- 
petites which are so common as hardly to be considered 

ive plenty, will find on examination, that if he had added 
to his necessary expenses the unnecessary expense of 
tobacco, he must have spent his life on the very vero-e of 
want. Houses for the relief of the poor should be so con- 
ducted as to cultivate in the highest degree habits and 
principles of frugal self-government. 

Nor is this enough, n, ,nen who are obviously living 
such Itves of vicious self-indulgence as must necessarily re- 
duce them and their families to want, should be arrested in 
the mzdst of their career, and placed at once under such re- 
sramts as will save the living of their families from 
further waste, and under such reformatory influences as 
may tend to restore them to the paths of virtue. The 
most common and perhaps the most destructive of all 
the vices which are multiplying and aggravating pauper- 
ism among us is drunkenness. For half a century the 
best portion of American society has been well aware of 
the prevalence and destructive character of this vice 
especially of its tendency to increase the amount of hope- 
less poverty. Many plans have been proposed and 
many experiments made, to restrain and eradicate the 
evil. These efforts have certainly not been without 
some success, but it must be admitted that the de<.ree 
o success which has attended them has fallen far short 
of the wishes and even of the hopes of the philanthropist. 
Me suggest that in one very important particular, Aey 
have been fundamentally defective. They hav^ot held 
the inebriate himself to a due responsibility for the con- 
sequences of his life. We have no wish to screen from 
censure the men who obtain their own Jiving by knovv- 
14* 



322 ECONOMICS. 

ingly selling to their neighbors the means of ruining 
their families and bringing destruction on themselves. 
But after all the primary responsibility is on the inebriate 
himself No community should allow its members to 
waste their earnings and destroy their own power to 
labor by lives of vicious sensuality, and then throw their 
families and perhaps at last the miserable remnant of 
themselves upon public or private charity for support. 
The men who are living such lives should be arrested in 
them at once by the friendly hand of society, pronounced 
by a legal process incapable of self-care, and placed 
under a conservator with power to protect and restrain 
them, save their property from waste and apply it for the 
support of their families. Any prohibitory legislation 
which treats the inebriate as a mere victim to be pitied, 
and throws the whole responsibility of the evil upon the 
seller, is radically defective. A community that allows 
inebriates to go unrestrained, till they have reduced 
themselves and their families to pauperism, should bear 
the burden of supporting them without a murmur. We 
place the men who have become insane through the in- 
evitable providence of God under effectual restraint, so 
that they may neither harm themselves nor others. 
How much more then should we impose restraints no 
less effectual, upon persons who are almost daily making 
themselves insane, objects of disgust and terror to the 
families they ought to protect. 

§ 233. The aspect of the subject just presented sug- 
gests another, the consideration of which must not be 
omitted. Society often, by its toleration of vices which 
it ought to prohibit, by lending its countenance to prac- 
tices on which it ought *to frown, becomes responsible for 
their existence^ and incurs a inoral obligation to relieve the 
poverty which they occasion^ even though in affording such 
relief it violates public policy. If the community deals 



PAUPERISM. 323 

with a traffic in spirituous liquors or with incitements to 
any other vice by legislation that tends to countenance 
and encourage it, instead of discountenancing and re- 
straining it, that community becomes thereby morally 
bound to support the widows and orphans that have thus 
been reduced to poverty. Let every such traffic receive 
from the community the frown of indignant rebuke, and 
feel the hand of rigorous restraint and repression. Ex- 
terminate such a traffic if you can ; if you cannot, restrain 
it as much as possible. 

This consideration has a special force in relation to 
all those systems of legislation which construct society 
on a false principle, and place large classes of men in 
conditions so disadvantageous, as necessarily to reduce 
them to hereditary pauperism. We regard for example 
the English system for the relief of the poor, with ex- 
treme disapprobation, as dangerous to all her future. 
But we should grieve to see provisions for the relief of 
the poor abolished, while the agricultural laborer remains 
in his present unfavorable condition. We should say, 
abolish your poor rate if you must, but in the name of 
humanity abolish your land monopoly at the same time. 
If the land monopoly is to be retained and perpetuated, 
surely those interested in its perpetuity should not refuse 
to support the agricultural poor. 

Before leaving this painful subject we must remind 
the reader, that the mere economist cannot deal with it 
in its totality. Its deepest roots are not in our science, 
but in the sister science of ethics. Men are pressed 
down into the morasses of society far more by moral 
than by economic causes. And even when some mal- 
adjustment of the economies of society is the primary 
cause of the evil, the cure must still be chiefly moral. 
Adjust and re-adjust our economic machinery as we may, 
it is still morality that makes and unmakes humanity. 



324 ECONOMICS. 



CHAPTER XVr. 



Wasteful Expefiditure. 

§ 234. It has already been remarked, that the laws 
which regulate the application of the products of indus- 
try to their appropriate uses belong rather to the depart- 
ment of ethics than of economics. Yet there are two topics 
the consideration of which perhaps more properly belongs 
to the moralist than to the economist, but which are so 
related to the whole economic system, and so vitally im 
portant to it, that we cannot with propriety neglect all 
consideration of them. They will therefore form the 
subjects of the two concluding chapters of this treatise. 

§ 235. From what has already been said it is obvious, 
that all the uses to which the products of human labor 
can be applied are divisible into two classes. One class is 
composed of all which is expended for the necessaries 
of life. This class we shall call necessary expenditure. 
The other class consists of all which is devoted to the 
gratification of desires, the satisfaction of which is not 
necessary to the preservation of life and health and the 
continued power to labor, and the preservation of the 
race. This class we shall call disposable expenditure. 
All expenditure of the first class is so determined and 
fixed by the natural laws of life and health, that it is little 
dependent on human intelligence or choice. There is 
indeed opportunity for the exercise of much wisdom in 
the selection of materials, and of much skill in preparing 
them for use. But food, clothing and shelter must be 
enjoyed alike by rich and poor, noble and peasant. The 
rich may incur much expense in the preparation of neces- 
saries which the poor cannot afford, but the necessities 



WASTEFUL EXPENDITURE. 325 

of the case are universal and poverty itself is no ex- 
emption. But in the use which is made of that portion 
of the products of labor which we have called dispos- 
able, men differ very widely, and on the use which they 
make of them the prosperity and happiness of society 
very largely depend. 

§ 236. Almost immediately after the strictly necessary 
wants of men are supplied, we find in almost all com- 
munities a vast demand for a few articles of diet, which 
certainly are not necessaries of life^ a?id of which some ap- 
pear to be in ordi?iary circitmstajices inju7'ious. They do 
not minister to nutrition, but produce their effect on 
comfort and happiness, by operating directly upon the 
nervous system, by exciting, tranquilizing and narcotic 
influences. The demand for them, in a great number of 
cases, is so imperative and urgent, that for the sake of 
obtaining them men will often sacrifice the food and 
clothing necessary for themselves and their families. 
The proportion of all the results of human labor, in all 
the civilized countries of the world, which is expended 
for spirituous liqicors^ tobacco^ tea, coffee and opium almost 
surpasses belief It is hard for science to demonstrate 
what beneficial influence they exert on the human econ- 
omy. Some of them are certainly employed by great 
numbers in such a manner as to be destructive of reputa- 
tion, impair health, shorten life, render men incapable of 
labor or self control, waste property and wreck the whole 
man. These sad phenomena are exhibited not in a few 
occasional instances, but in great numbers, in all classes 
of society and in all the conditions of life. Yet the ex- 
penditure of our country for these articles nearly ap- 
proaches if it does not equal or exceed the cost of bread 
or necessary clothing. Those substances belonging to 
this class which are most in demand, and most open to 
the charge of being far more injurious than beneficial 



326 ECONOMICS. 

are, ur.der our present revenue system, subjected to a tax 
which, if enforced against almost any other article not a 
necessary of life, would be prohibitory, without any 
perceptible diminution of the demand. Many of the 
most enlightened, virtuous and philanthropic men among 
us believe, that at least the traffic in intoxicating liquors 
is destructive of public health and morals, and ought to 
be suppressed as a public nuisance. Yet under all these 
discouragements and burdens, the traffic is openly pur- 
sued, and the consumption seems to be increasing with 
all its evil consequences. 

§ 237. It is not our business to deal with the ques- 
tion of the relation of these substances to the human 
constitution, and to the laws of life and health. That 
question belongs to the chemist, the physiologist and the 
physician. But the existence of an expenditure so vast, 
and in some of its aspects so destructive, y"^r which science 
can render so little accoimt^ and furnish so little justifica- 
tion^ is not creditable to our civilization. The same re- 
mark may be made with very little modification in rela- 
tion to the whole civilized world. Civilized men should 
surely act more intelligently and reasonably in relation 
to a subject of such importance. If intoxicating drinks 
render some service to the human constitution, which 
justifies the enormous expense incurred by the use of 
them, and the risks encountered, certainly science should 
be able to demonstrate it, and relieve the conscience of 
the nation, which evidently at present is ill at ease on 
the subject. If these substances, especially intoxicating 
drinks, have no such beneficial relation, the whole en- 
ergy of a civilized people should be exerted, to arrest so 
wasteful and destructive an expenditure. If we can place 
any reliance on statistics, a very few years of the con- 
sum.ption of intoxicating drinks alone at the present rate, 
will equal the whole cost of the four years war of the 



WASTEFUL EXPENDITURE. 



327 



great rebellion. We think this a field of inquiry, in 
which scientific research should be prosecuted with ut- 
most earnestness. Whence this craving for stimulus? 
Whence this appetite, not for food, but for destruction ? 
The life we are living as a nation in relation to this mat- 
ter, and to a great extent the same is true of other civ- 
ilized nations, is more brutal than human. We are obey- 
ing the blind impulse of appetite instead of being guided 
by enlightened reason. 

§ 238. There is another branch of expenditure, which, 
though less destructive, is scarcely less wasteful or more 
rational. We refer to the ^^ssion for excessive perso7tal 
07'7ianwitation. It has already been clearly shown, that 
a true economy enters no protest against the love of the 
beautiful. The resources of the world and the powers 
of man are evidently so adjusted to human want, that 
ample provision has been made for the ornamental as 
well as for the necessary ; and the latter must be culti- 
vated or a large amount of human power must be quite 
useless to mankind. Beauty is a real good, and humanity 
fidy adorned is a far nobler thing than if unadorned. 

But the methods in which the ornamental is pursued 
and applied deserve attention. Every one knows that 
in the real world around us, the use of onuwiejtt is not reg- 
ulated by aiiy perma7ient caTions of beauty, and that in this 
whole department fashio7t rules with an undisputed 
supremacy. We are not going to attempt a scientific 
definition of fashion, yet it is obvious that a certain 
capricious thing known by that name has, in respect to 
all that is designed to be ornamental, more influence 
than reason. It is our duty here as everywhere to hear 
the voices of nature, and there are teachings of nature in 
this department, v/hich lead to the regulation of the 
ornamental on principles which perhaps we could not 
have anticipated. There is a natural taste for rank. 



328 ECONOMICS. 

Society tends to arrange itself in grades one above an- 
other. Against the aristocracy which intrenches itself 
in legislation, all Americans protest. But after all we 
are not less devoted to the conventional aristocracy of 
custom than other peoples, and the classes esteemed the 
higher are not less jealous than other aristocracies of the 
peculiar privileges and honors which they claim for them- 
selves. They cannot be, in such a society as ours, 
permanent, but are as changing as drifting masses of 
sand. Men go up to-day and down to-morrow, but this 
makes them by no means less desirous to render the 
boundary lines of the high rank to which they claim to 
belong as clearly drawn as possible. 

§ 239. In this social rivalry there is a constant en- 
deavor so to employ personal ornament, as to 7nake it dis- 
tinctive of that rank in which one claims a place. The 
style of dress and equipage which is for the tim.e being 
the badge of the highest social position, is eagerly emu- 
lated by all that are below. No costliness is spared by 
the prosperous merchant, mechanic or farmer, to array 
his household, especially his wife and daughters, in the 
style that is recognized as the badge of high society. In 
a short time any style that is thus emulated will cease to 
be a badge of distinction ; it will have descended to the 
multitude, and the leaders of fashion must invent some 
new mark of distinction. This soon shares the same fate. 
Thus new costumes of gentility follow each other almost 
with the rapidity and capriciousness of the changes of the 
wind, and a burden of expense is brought upon the com- 
munity almost unlimited. The love of the beautiful is to 
a great extent supplanted by the love of the fashionable, 
and the expense of living is increased beyond all reason- 
able limits. 

§ 240. This cause of the expensiveness of living 
operates even more powerfully in a democratic community 



WASTEFUL. EXPENDITURE. 



329 



than any other. In aristocratic communities, the social 
pyramid is divided into portions quite definitely distin- 
guished from each other by parallel planes, and those in 
the lower strata accept rather contentedly the social 
position assigned them, and do not so much emulate the 
style of ornamentation which is the badge of a rank 
higher than their own. Rivalship in dress is in some 
degree limited to those in the same rank. But in a 
democratic society no such recognized social planes 
exist. Those in every social condition emulate^ to the 
best of their ability, the external symbols of the highest 
gentility, and will spare no expense in their power to 
incur, to attain to them. An element of expensiveness 
is thus introduced into the whole life of a democratic 
people, more burdensome to many families than the 
entire cost of necessary food and clothing, far more bur- 
densome than the taxation imposed on us by our national 
debt. When we were bearing the burden of the income 
tax, exemption was made, even in our time of extreme 
necessity, for all whose income did not exceed six hun- 
dred dollars. But this is a tax that knows no exemption. 
It is levied on a father's and a mother's pride in the 
social position of their daughters, and is therefore sure 
to be paid, even at the expense of bankruptcy at no dis- 
tant day, and not seldom of a widowhood and orphanage 
of uncomforted want and poverty. This picture will be 
found to be true to the life in instances sadly numerous. 
If we are to have, at no distant day, a mass of pauperism 
as fearfully vast and hopeless as older civilized countries, 
the cause of which we are speaking will bear a most im- 
portant part in bringing it upon us, and in pressing down 
our own sons and daughters into it. 

We are not denouncing fashion. We have admitted 
thut it grows out of certain pri7iciples in hwna?! naticre^ 
which cannot be eliminated. But it is well for us all to be 



33^ ECONOMICS. 

aware of the destructive excesses and perversions to which 
those principles are liable, and to be put on our guard 
against them. It is not beneath the dignity of science, 
to point out the influence of this cause on the expendi- 
tures of a community, and to show how much safer guide 
to true prosperity is found in the cultivation of a taste 
for the really beautiful, the fittingly ornamental, than in 
following the ever shifting caprices of fashion. Is the 
elevation of a free community to this nobler standard of 
life a thing to be despaired of.? 

This subject is worthy of grave consideration, not 
only in the homes of those whose resources are scanty, 
but in the mansions of the rich. , The latter may be able 
to bear the exactions of fashion without being distressed 
by them. But they might easily learn, that these fash- 
ionable follies render their lives much less dignified and 
honored than they might be, and that the sums that 
could easily be redeemed from this waste could be de- 
voted to the accomplishment of objects which would 
afford them much more rational and enduring happiness. 
Perhaps they are not aware of the profound pleasure 
which many cultivated persons experience in visiting an 
attractive home of wealth, where good taste has dictated 
everything, fashion nothing. If such persons will break 
away from this bondage, they will not only have a de- 
lightful sense of freedom, but they will do a great deal 
to protect those in less favored conditions of life from 
the destructive fascination of fashionable folly. If the 
canons of taste instead of the canons of fashion can 
once make their authority respected in the homes of the 
wealthy, there is hope we may yet be a truly economical 
people. 

§ 24T. The prevalence of this unwise style of expend- 
iture is the more to be deplored, on account of \X^ power- 
ful tejidency to prevent the fortnation of a taste for the really 



WASTEFUL EXPENDITURE. 33 1 

beautiful. There are a great many homes in which 
fashion exacts an untold amount of costliness, where 
there is yet a sad lack of almost everything that is really 
beautiful, or even convenient and comfortable. Costly 
gentility in public and before the world, the merest hum- 
drum in their ordinary routine in private, make up life. 
Such a tendency is unfavorably affecting our nat'>.nal 
character. Of course expenditure imposes its law on 
production. Labor and capital can only be made to 
yield profit, when they are employed in producing what 
the people desire to purchase. If the people are dis- 
posed to expend their resources chiefly upon the latest 
fantastic productions of the tailor, the milliner and the 
dressmaker, little will be left for the genuine artist. 
True art must be expected to languish very much in 
proportion as the arts which fashion patronizes are en- 
couraged and rewarded. The question has been much 
discussed, whether the fine arts are likely to flourish in 
our country. That must depend, not upon our political 
institutions, but on the dominant ideas and prevailing 
tastes of our people. The character of our people is to 
make this country great, or to belittle it. Art did pre- 
vail in democratic Athens more than among any other 
people on earth, and prevailed most when she was most 
democratic. If a democratic people loves beauty and 
has a true taste for it, cities and villages and rural homes 
will be full of the productions of true art. But if it loves 
nervous stimulation and follows blindly the caprices of 
fashion, its public gatherings may be full of meretri- 
cious magnificence, but both its public and its private 
places will be dolefully barren of all the grandest pro- 
ductions of genius. 

§ 242. To give the law of competition free course is 
to make the people the arbiters of their own destiny. Men 
who are really free to buy and to sell, to employ and to 



332 ECONOMICS. 

be employed, to own land and to sell land, will also be 
free to expend their disposable resources according to 
their own tastes ; and by their folly to make themselves 
mean, or by their wisdom to make themselves great and 
renowned in the earth. We have unequaled advantages 
for accumulating wealth, and unlimited freedom in ex- 
pending it. By the very abundance of our resources and 
the freedom which we enjoy, it is placed in our own 
hands to become the greatest or the meanest of nations. 
That momentous question turns on the single hinge of 
private expenditure. If our prevailing tastes are low, 
vulgar, and sensual, the world will minister to our grati- 
fication and our ruin. If our tastes are pure and rational 
and wise, the world will no less contribute to our gratifi- 
cation, and to our growth in all that is noblest in man- 
hood, and worthiest of our privileges and our freedom. 

§ 243. The question how men expend their power to 
labor, is no less interesting, than the use they make of its 
results. The common human patrimony is equally af- 
fected by the waste or misapplication of the one or the 
other. It has been shown in its proper place, that the 
increase of human power by the use of labor-saving ma- 
chinery does not, as might have been anticipated, minister 
to idleness, by dispensing with the necessity of labor, but 
on the contrary greatly increases the demand for it in 
every department. But while this is true, it does never- 
theless tend to the rapid increase of capital, and by increas- 
ing capital increases the number of those who are not 
compelled to labor by any necessity. Will it not then di- 
minish the amount of labor actually performed.? That it 
does to some extent relieve the rich from the pressure of 
necessity to work is certainly true. But if the rich man 
himself would remain rich, his life must be pretty indus- 
triously employed in managing his estate, with a view to 
its preservation, enlargement and right use. It must 



WASTEFUL EXPENDITURE. 333 

however be admitted^ that there are not a few deriving 
their subsistence from the incomes of the rich, who do 
spend aimless lives, devoted only to the enjoyment of 
each gratification of desire which for the present mo- 
ment seems most attractive. In just so far as the pos- 
session of wealth induces those who subsist by it to lead 
such lives, it is ruinous in its influence. It makes those 
lives worthless, which it was intended to render more 
efficient and useful. The conception with which we 
began this treatise, that every human being is a laborer, 
is accordant with the only true manhood. He who in 
the enjoyment of wealth leads a life without any aim to 
achieve something worth living for, falls out of the true 
human life into the life of an irrational animal. His 
wealth has deprived him of his manhood. All who are 
entrusted with riches should use their utmost endeavor, 
that they be not thus perverted to the injury of any who 
subsist by them. There are innumerable ends which a 
rich man may pursue, which greatly ennoble and adorn 
life, and yield an abundant reward. It is the privilege 
of those who are relieved from the necessity of toil, to 
aim at and achieve results which are beyond the reach 
of the utmost endeavors of those who must labor for 
their daily bread. That is a very unfortunate rich man, 
who on being relieved from the necessity of toiling for 
subsistence, knows not how to employ himself in any- 
thing which will be of service to mankind. 



334 ECONOMICS. 

CHAPTER XVII. 

Public Liberality. 

§ 244. In the view of many, this topic is entirely out- 
side of our science. Several recent writers have accepted 
the definition of the science proposed by Archbishop 
Whately, — The Science of Exchange, — and have thus 
reduced the science to a mere "quid pro quo." Our 
readers are already well aware that we by no means ac- 
cept this definition. We believe that the word wealth 
may be so defined as to be accurately expressive of the 
whole group of phenomena of which the economist is to 
treat, and comprehensive of all the uses of the thing 
defined. In this view of the case all the original desires 
of man which impel him to labor are natural forces with 
which the science is concerjied. 

One of these is the love of social prosperity and well- 
being. It is one of the noblest impulses of humanity, and 
an exceedingly important element in the economic sys- 
tem of the present age. Man's power to render the 
universe helpful to human well being by the exertion of 
his labor was designed to minister to the gratification of 
every natural desire of the human soul. Man may not only 
exert his powers to procure what he desires by exchange, 
but far the production of beauty which all may enjoy, and 
none can appropriate, and for that perfected civilization 
which is the common inheritance of mankind. 

There are common wants of communities, which the desire 
of gain and the direct expectation of profits will never suf- 
ficiently provide for. Men will build machines, railways 
and ocean steamers under the influence of the hope of 
gain, and they will realize the profits the hope of which 



PUBLIC LIBERALITY. 335 

Stimulated them to these undertakings. But there are 
some of the very highest wants of men of which they 
never become in masses sufficiently conscious to provide 
for them on principles of exchange. Of this character 
are hospitals for the sick and suffering stranger or un- 
fortunate, monuments appropriately to record the great 
events of a nation's history, and to honor the memory 
of the founders of states, the discoverers of science and 
art, and the benefactors of their race, colleges and uni- 
versities for the highest culture in all the various depart- 
ments of knowledge, and libraries in which the thought 
and wisdom of the ages shall be garnered up for the in- 
struction of successive generations, and made accessible 
to all the curious and the studious. 

Governinents cannot he relied on to supply these wants 
of society. In no country has the government, as a 
general rule and in the long course of its history, cm- 
braced within itself the highest thought and the most 
perfect culture of the successive generations. Force, not 
thought or argument is the weapon of a government, and 
it can therefore never be relied on for quickly and keenly 
appreciating those moral and spiritual forces, which are 
most of all potent and beneficent in the formation of the 
character of a people \ and of course it cannot safely be 
trusted, promptly and efficiently to apply such forces. 
The sword is in all ages the emblem of civil power, and 
an agency adapted to wield the sword with effect can 
hardly be expected to be eminently fitted for the intel- 
lectual, moral and spiritual culture of society. Certainly 
the experience of the ages has shown that it is not. 
Here then is a wide field for the exertion of beneficent 
influence on all the future of society, which must always 
invite individual effort. Here are most important wants 
of communities, nations and the race that can be sup- 
plied only by individual liberality. 



336 ECONOMICS. 

§ 245. It has been shown in the foregoing treatise, 
that with the increase of capital, its rate of profit con- 
stantly declines. With this decline the motive to ac- 
cumulation is dimmished also, and some have their ap- 
prehensions, that in the wealthier countries of the world, 
this motive may become sufficiently enfeebled to arrest 
the increase of capital. Should the whole civilized world 
approach such a plethora of capital, there would be a 
liability to rash and hazardous speculation, in which 
much capital would be wasted, and the rate of profit of 
what remained would be thereby raised. But the same 
state of things would also be favorable to the investjne?tt 
of capital in enterprises of pjiblic liberality without any direct 
expectation of profit in return. When capital is super- 
abundant and profits are small, it may be expected that 
the owners of capital will incline more toward the side 
of prodigality than of frugality. All their desires are 
likely to be more freely gratified. But if the moral cul- 
ture of society has not been neglected, it is to be hoped 
that all would not be swept along on this current of self- 
indulgent folly. Many we might reasonably hope would 
gratify the highest impulses of our nature in the enjoy- 
ment of their wealth, rather than the lowest and most 
debased. As a true civilization attains to a more abun- 
dant supply of capital, it may be expected, that as there 
will be increased ability, so there will be increased dis- 
position, to perform acts of generous liberality; and that 
men will find more pleasure in expending their accumu- 
lations for the benefit of mankind, than for sensual or 
even esthetic gratifications. 

Men of wealth can never afford entirely to neglect such 
outlays of capital^ even if they have regard only to their 
highest prosperity in trade. The sound and healthy con- 
dition of trade always depends much upon the intelli- 
gence of the community, and especially of men of lead- 



PUBLIC LIBERALITY. 337 

ing influence in it. Men of wealth are in their own 
private affairs deeply interested in the higher education — 
that education which forms the character of the leaders 
of society. For example the doctrines of currency and 
freedom of exchange which are defended in this treatise 
are either true or false. If they are false it is exceed- 
ingly desirable to all the capital of the country, that our 
schools for the higher education should not favor them, 
nor give them currency among the leading minds of the 
nation. If they are false, science can demonstrate their 
fallacy, and effectually guard our young men that are 
growing into public influence from adopting them. But 
if they are true, it is more important than can well be ex- 
pressed, that all nations as well as our own people should 
as rapidly as possible be persuaded to adopt such free- 
dom of exchange in all things, and between the inhabi 
tants of all countries, as will give to the labor and capi 
tal of the world all the advantages to which they are 
naturally entitled. According as men of wealth believe 
these doctrines to be true or false, they should vie with 
each other, in securing for the hopeful young men of 
our country, a true knowledge of the scientific princi- 
ples which underlie all production and all exchange of 
values. It is the present misfortune of our country, that 
many of our public men have never considered these 
matters at all, and are discharging public functions of the 
gravest importance to all the interests of trade, without 
having received any education in the scientific principles 
which underlie all such questions. This cannot be a 
healthy condition of affairs. It is impossible in such a 
country as ours to detach individual prosperity from pub- 
lic intelligence. 

§ 246. Apart however from all considerations of per- 
sonal interest, it is fit that the hope of achieving something 
for the lasting benefit of one's country and of mankind 
15 



338 ECONOMICS. 

should be a powerful stimulus to an industrious and frugal 
life. The man who seeks to obtain, by the use which he 
makes of wealth, the exalted pleasures of beneficence, 
will insure for himself, in addition to that deference which 
wealth itself is apt to inspire, that affectionate reverence 
while living, and that grateful remembrance in after 
years, which men are accustomed to accord to eminent 
wisdom and goodness. 

It has been shown elsewhere that by the very law of 
ownership, the rich are made the treasurers of a portion of 
the common patrimony of the race. Of this relationship 
men are apt to be entirely unconscious, and to live just 
as they would if they only were interested in the capital 
which they control. Their lives would be much wiser 
and happier if they would i^ecognize this fiduciary relation 
in which they staiid to the rest of the world^ and seek to 
promote, by wisely directed effort, that general well- 
being to which they cannot help ministering by their 
efforts to increase their own wealth. They would thus 
become public benefactors, as well by intelligent purpose 
as by the necessity which is imposed on them by the law 
of ownership. 'We cannot forbear the suggestion, that 
when capitalists show themselves to be in spirit and in- 
tention what the very structure of the economic system 
compels them to be, they will accomplish much towards 
putting an end to that dangerous feud between capital 
and labor, which is awakening so much just apprehension 
in the minds of all thoughtful men. When all men see 
that capital is, not only by a necessary law of nature, 
but with voluntary intention and purpose, held in trust 
for the general good, the laborer and his employer will 
feel themselves to be in fraternal and not in hostile rela- 
tions to each other. The employer will feel that the 
laborer is a natural partner in the business in which 
they are co-operating, and will gladly recognize his right- 



PUBLIC LIBERALITY. 339 

ful claim to considerate regard. The laborer on his part 
will feel that he has an interest in all the products he is 
helping to create. We do not believe this unnatural and 
ruinous conflict ever can be terminated, except on such 
terms as these. All must come to recognize that com- 
munity of interest which has been shown to pervade the 
economies of the world. 

§ 247. Great care must be taken that such acts of 
public liberality should be performed in such a manner 
and under such conditions, as to violate no economic law. 
For this reason no public institution of charity or educa- 
tion should be permitted to hold lands by an inalienable 
tenure. We are aware that the great universities of Eng- 
land largely owe their present magnificent endowments 
to the fact, that centuries ago they were endowed with 
lands which they could not alienate, the rent of which 
has steadily increased with the progress of the nation in 
wealth and population. It may be asked why we should 
not provide our public institutions in the same mannei 
with permanent and ever increasing resources. We 
answer, because such endowments would interfere with 
that free trade in land which is most fundamental to 
American, and it seems to us to all truly free society. 
One great obstacle which stands in the way of the speedy 
abolition of the English land monopoly will be found to 
lie in the vast landed estates held by great, permanent 
and noble institutions of learning and beneficence. All 
those who are most intimately related to those institu- 
tions would be apt vehemently to resist the change. 
But the permanent prosperity and beneficent power of 
those institutions would not be really at stake ; to us on 
the contrary it seems, that the change would be very 
happy in its influence on them, so far as they are really 
rendering important service to the society. Endow- 
ments in land held by inalienable tenure, acquired while 



34° ECONOMICS. 

society was yet in its infancy render such institutions in- 
dependent of the thought and progress of each living 
generation, and too often blindly conservative of an 
antiquated and dead p?.st. Public funds will always pro- 
duce greater present income at interest, than in real es- 
tate. If therefore all real estate held by such institutions 
is made alienable at the discretion of trustees, they will 
be under a strong inducement to dispose of it in order 
to obtain a greater revenue available for immediate uses. 
Thus the freedom of exchange will not be interfered 
with, and the immediate productiveness of the fund will 
be increased. But the farther increase of the fund from 
the rise of real estate will be arrested, and for its grow- 
ing necessities as wealth and population increase, the 
institution will be thrown upon the liberality of each suc- 
ceeding generation. As capital is rapidly increasing, if 
the institution is performing well its high function, the 
experience of this country shows, that that liberality will 
be adequate to all exigencies as they arise. Institutions 
founded on such a basis may always be expected to 
stand abreast, not of the whims of capricious faction, but 
of the sound thought and healthful progress of a living 
civilization. Funds thus invested in public institutions 
of beneficence are not withdrawn from the active capital 
of the future. It makes no difference to one who wishes 
to borrow money, whether he obtains it from a private 
capitalist, a bank directory, or the trustees of some fund 
devoted to an object of public munificence. Such funds 
are far more likely to be preserved from loss or waste 
than they would be if transmitted to uncertain heirs, and 
are always available for the practical use of the age, by 
the payment of the current rate of interest. Institutions 
thus endowed will represent the highest culture of the 
present, as they should do, if they are to educate the 
leading minds of the generation that is to succeed. 



PUBLIC LIBERALITY. 34I 

They will still be conservative rather than radical in 
their tastes and tendencies ; but they will not be rock- 
bound islands in the stream of progress, which the cur- 
rent has no power to shake or to wear away, bringing 
the cultured intellect of each passing age into hopeless 
and perpetual conflict with its living practical thought. 

§ 248. A government so purely democratic as ours 
will always represent the average thought of the natioii, and 
never its highest and most cultured thought. Yet it is 
evidently most desirable, that such a nation should have 
an efficient system of culture, representing its highest 
thought, and controlled by it. Such a system it can 
hardly be expected to have under purely popular control. 
Our own country is at the present time and in its past 
history able to furnish ample illustration of this. It is 
for the most part through the liberality of the wealthy, that 
such a system of liberal culture has been originated and 
sustained. The most cultivated intellect of the nation, 
cooperating with its liberal capitalists has a duty to per- 
form, and always will have, which cannot be neglected 
without imminent peril. Thus far in our history such an 
alliance between the intellect and the capital of the 
country has always existed, and has produced results 
most eminently satisfactory. They seek no alliance with 
the state, they ask no privileges from the state, they 
desire to lay no burden upon the taxpayer ; they only 
ask freedom of opportunity, to found and to perpetuate 
the highest civilization, by the exertion of intellectual 
and moral forces only. It is greatly to the honor of our 
free institutions, that the public liberality of individuals 
acting only on the voluntary principle has laid founda- 
tions so ample, and reared superstructures so creditable 
to our civilization. Nor is there any reason to appre- 
hend, that the voluntary principle will be inadequate to 
the much larger necessities of the future. 



342 ECONOMICS. 

§ 249. In another point of view this subject seems 
invested with very important relations to interests which 
are directly economic. It is obvious to any one, that 
in such a country as ours, there is a liability that the ac- 
cumulation of capital may be prematurely arrested. We 
have spoken freely in the foregoing chapters of land 
monopoly, and have very earnestly deprecated it. We 
have no intentions of retracting or modifying anything 
which we have maintained on that subject. But we wish 
to deal fairly with the whole question. There is but one 
known way in which the name and honors of a family 
can be handed down through successive generations. 
It must be done, if done at all, through a landed estate, 
which descends inalienably in the family and bears its 
name. When such facilities are afforded by the laws for 
perpetuating a great family interest, men are induced to 
accumulate wealth not only for themselves and their 
children, but for their remote posterity. Under such 
circumstances there will always be a strong motive to 
acquire for the purpose of founding and improving a 
family estate, and adorning a family mansion. But 
under such a law of descent as ours, no such motive can 
exist. One may lay up for his children, but there can be 
little hope that any estate which he can accumulate will 
reach his distant posterity. The temptation therefore is 
to live more for the present and less for the future. It 
cannot be denied, that one of the dangers of American 
society is, that each generation will live for itself alone, and 
that we shall be characterized alike, by the greed and 
rapidity of our acquisition, and the profusion of our ex- 
penditure. We seriously ask the thoughtful, if there are 
no indications of the development of such a national 
character. Have we not some real reason to apprehend a 
growth of sensuality and fashionable ostentation, limited 
only by our success in the prosecution of gain } 



PUBLIC LIBERALITY. 343 

It is then eminently desirable on grounds purely eco- 
nomic, that in the absence of the possibility of men's 
calling their lands by their own names, they should seek 
to perpetuate their names by the permanent public institu- 
tiojis of teaming and philanthropy which they found and 
foster. The names of Yale and Harvard and Phillips 
are not likely to be forgotten. It is also not improba- 
ble that foundations which have been laid in the great 
interior of our country may confer a like honor on their 
founders. A prevailing disposition among the capital- 
ists of this country to employ their capital for such pur- 
poses would do much to arrest these tendencies towards 
wasteful prodigality, to raise families above a life of 
sensuality and fantastic display, and would redeem from 
waste a great amount of capital to be securely held at 
the current rate of interest, and just as available to 
assist and reward labor, as though it was still owned by 
a private capitalist. This subject is worthy of the most 
serious attention, on account of its economic relations, 
over and above all its relations to the higher culture. 
It is the natural and proper substitute for that ambition 
of family, which can only be gratified by the aristocratic 
tenure of land. It is by far the nobler sentiment of the 
two, it is in perfect harmony with democratic institu- 
tions, and can be freely indulged without any interfer- 
ence with the helpfulness of capital to labor, or with 
that perfect freedom of exchange, which must sooner or 
later pervade the economies of the world. All capital 
thus disposed of will fall into a succession in which 
it will probably have the best chance that can be de- 
vised of being protected from waste and loss, and pre- 
served for the distant future. In presenting this topic, 
we therefore believe that we have not at all overstepped 
the limits prescribed to a grave scientific treatise. 



